Bankruptcy is ugly. Depending on what kind it is, you may lose valuable property in the process and basically be out of commission when it comes to taking on any new loans for several years.
Bankruptcy laws were put in place to protect people who had gotten into so much debt that they would never be able to get out of it in their lifetime. Ultimately, it’s been a good thing in our society.
By eliminating things like debtor’s prison, it freed people up to take on debt, take risks and not be burdened by debt for the rest of their lives. That risk-taking foundation of the US has been a huge contributing factor to the nation’s success.
Even though bankruptcy is better than being in debt you can’t possibly pay off, it still should be the last resort. Here are some alternatives to check out before filing for bankruptcy.
1. Credit Counseling
There are many credit counseling services available to help you navigate your way through debt. Being in overwhelming debt can be complicated and emotionally draining. That may cause you to have blind spots and miss opportunities to potentially get out of your situation.
A credit counselor may be able to come up with a plan that gets you on a road to financial health without having to file for bankruptcy. A fresh set of eyes may provide a solution that you have not thought of.
In fact, you’d have to do this anyways before filing. A recent law change requires people to talk to a government approved credit counselor before being allowed to file.
2. Negotiate with Creditors
Your creditors would prefer you don’t go into bankruptcy. Once you go into bankruptcy, the courts will liquidate non-exempt assets in order to pay off your creditors.
In most cases, your creditors will either get just a small fraction of your debt repaid or none of it at all. So, they’d rather negotiate a lower interest rate or debt settlement before you file.
If you’re able to save up some cash, a credit card company may offer to write off the remaining balance if you pay them up front. That is because they know they are unlikely to get any cash from you if they don’t take that opportunity.
3. Debt Consolidation
Debt consolidation with companies like Lance Advisors has become a popular in recent years as an alternative to bankruptcy. It can potentially lower your interest rates, extend repayment period and even lower your monthly payment.
With debt consolidation, a firm like Lance Advisors will come in and pay all of your loan balances. Then they will combine it all into one loan, typically with a lower interest rate.
So, if you have a total of $100,000 in high interest credit card debt with a 20% APR, they will pay off the balances on all your cards. You will now owe Lance Advisors the $100,000, but possibly at a much lower interest rate.
They may even be able to extend the repayment periods. That combined with lower interest and fees could actually work out to be a lower monthly payment.
4. Friends and Family
This option would be no fun for anyone, but it could potentially save you from going into bankruptcy. You could get personal loans from your friends and family.
Since they’re doing this out of the kindness of their own hearts, they will likely not charge you interest. Some may outright give you the money.
It may create strains and awkwardness at future family gatherings, but sometimes desperate situations call for desperate measures.
5. Do Nothing
This is not recommended in all but the most extreme of cases. We’re not saying that you should be passive about your financial condition and the crisis you might be in.
That being said, in many cases, credit card companies that you have outstanding balances with will sell your debt to a collection agency for pennies on the dollar.
For example, you may have an outstanding credit card debt of $5,000. After failing to get you to pay at all, they may sell it to a collections agency for $500. Then the collections agency will come after you. They are hoping they’ll get the $5,000 paying only $500 for the debt, making a cool $4,500.
There are some collections agency where the debt amount is so low that they’ll lose money trying to go after you for it. After some tries, if you ignore them enough, they may actually go away.
Yes, getting your debt sent to a collections agency hurts your credit, but it’s bad already anyways.
No one wants to go into bankruptcy. It’s a huge setback and can cause you to lose a lot of valuable property. These alternatives to bankruptcy should be considered before filing those fateful papers.