Alternatives To Bankruptcy

Alternatives to bankruptcy

Many people feel they have to file bankruptcy as soon as they recognise they are in over their heads, and they feel like there is absolutely no way to get out of debt. Bankruptcy however, can be used as the last means to eliminate debt, and after all other debt management programs have been thoroughly researched and exhausted.

Before making the decision to look into bankruptcy, consider each of the following alternatives:

• Refinancing

• Debt Consolidation

• Debt Settlement

• Debt Negotiation

If after you’ve considered each alternative to bankruptcy, you still think that your financial burdens are greater than the money you have on hand to make payments every month, you may not have other alternatives other than bankruptcy.

Refinancing

If you are a home owner and have equity in your home, it should be possible for you to get aproveed for funds from the equity you have in your home, and use it to pay off your accounts. This will consolidate the monthly payments on each of your credit cards or loans that you have used your 2nd mortgage to pay off, and allow you to make one, more affordable monthly payment. If you are able to use a 2nd mortgage from the equity in your home to manage your your accounts, make sure that you do not rack up more personal debt, because before you know it you will be right back where you were before the refinance!

Debt Consolidation

Few people are able to get rid of all of their monthly credit card and loan payments by taking out a debt consolidation loan. Typically, a line of credit will require some form of equity to secure it. Unfortunately, you do need to have fairly good credit in order to obtain a secured loan, but this is a viable option for someone who finds themselves in over their head before the payments start becoming late.

Debt Settlement

Sometimes you can settle your debt out of court. While it is possible to get a debt settlement on your own, it is advisable that you find a professional institution to help you negotiate with your creditors to cut down the amount of money that is owed. Typically, creditors are willing to accept less than the amount that is owed to them if they think you are going to be filing a bankruptcy proposal. They realize that a settlement is going to give them more money on the amount owed than the bankruptcy will, and it is in their favor to work with you in this situation. In order to settle your debts, you should have money on hand to instantly pay your debts and get them to close the account, and report it as “paid as agreed” to your credit report. If you’ve just received a fairly large tax return for example, you could consider attempting to settle your debt with each creditor by offering them less than the total amount owed to close out the account.

Debt Negotiation

Negotiating your debt can be helpful, although it doesn’t eliminate your credit card debt consolidation. Call each of your creditors and discuss with them that you are having financial difficulties. Explain you are considering bankruptcy, but before you take that leap you would like to see if you can negotiate your debt with each of your creditors to obtain payment arrangements that work better with your financial situation. Some credit card companies will lower the interest rate and stop late fees and finance charges from occurring, and it really helps you start paying down on the balances. The trouble with credit cards is that once you get behind, the interest and finance charges each month are as much as or more than your minimum monthly payments, so you are paying every month and never reducing your balance. With lower interest rates, and creditors who stop the finance charges and late fees temporarily, you can start chipping away at the actual balance, and hopefully pay off a few accounts during the negotiation period.