Alternatives to Bankruptcy

September 4, 2012

The first thing you should do before filing for bankruptcy is contact all the people you owe money to and see if there is a way that you can work out a repayment schedule. You might be surprised how cooperative creditors might be if you call and show interest in paying back the debt.

You can also mention that youaE™re thinking about filing for bankruptcy if you canaE™t find a way to pay back your debts. This often makes creditors much more willing to work with you because they know that if your bankruptcy is granted, theyaE™ll never have their money paid back to them.

If you donaE™t feel comfortable contacting and negotiating with creditors yourself, you can hire a non-profit credit counseling service to do this for you. This service will contact everyone for you, and theyaE™ll also work with you to help you repay your debts. While they may not offer a loan to help you pay them off, they will help you create a plan that works for you and is reasonable and that will help you repay your debts in a timely manner. These professionals can also give you inside tips on how creditors, banks, bankruptcy, and loans work so you can have a better idea of which options are best for you.

After you call your creditors you might then want to consider calling a lender for a debt consolidation loan. These loans are available from banks or private debt consolidation lenders. With this type of loan, the lender will consolidate all of your debts into one amount. They will then pay back all of your creditors and you will have a loan outstanding with them to pay back the full amount paid. Debt consolidation loans can often come with reasonable and affordable repayment plans and can be a great alternative to bankruptcy. ItaE™s important to know that these loans come with interest rates attached and they vary greatly from lender to lender.

Using a credit counseling or debt counseling program is often compared to a Chapter 13 bankruptcy, because it allows you to create a repayment plan to repay your debts. However, using a credit counseling program doesnaE™t affect your credit negatively in the same way that filing a Chapter 13 does. However with a Chapter 13, creditors are very limited in the collections actions they can take should you miss a payment. When using a debt counseling program, creditors can start collections actions as soon as you miss one payment, putting you right back where you started. Also, if you use a debt counseling or credit counseling program, youaE™ll be required to pay back the full amount of your outstanding debt. Often if you file for Chapter 13 bankruptcy, the amount youaE™ll need to repay is a much smaller amount than what is actually outstanding.

Surprisingly, one of the best things to do when youaE™re facing extreme financial difficulty is to do nothing. That debt will eventually be written off by creditors, and it will eventually be wiped from your credit history aE" although this is likely to take as long as having a bankruptcy claim on your report will. By the time most people are at the point of considering bankruptcy, they have no assets left to lose. ItaE™s very easy for creditors to find out that someone has no assets and so, theyaE™ll see that litigation against you is not worth it simply because they have nothing to gain by suing you. Doing nothing will take a very long time in itself and like bankruptcy, should only be considered as a last resort.

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