7 Alternatives to Bankruptcy That Everyone Should Know About
Have you incurred huge debts? Are you contemplating filing for bankruptcy? For those trapped in debt, filing for bankruptcy may seem like the only way out. But come to think of it, such a move can have detrimental implications on your credit score.
From having to go head to head with creditors, to auctioneers and other people looking to use any legal means to get their money back, you can agree that all this can cloud your judgment.
However, it would be better for you to take a moment to analyze and see what other options there are for you to get out of this implausible situation without suffering too much damage.
Fortunately, bankruptcy isn’t always the only option for people who can’t pay back their debt. Learn about alternatives to bankruptcy here.
Viable Alternatives to Bankruptcy
Besides your credit score, there’s a bigger price to pay once you file for Chapter 7 or Chapter 13 bankruptcy. If you want to maintain some level of dignity and yet still remain standing on your feet even while in debt, you may have to get creative.
As opposed to bankruptcy, some of the options you could consider include:
1. Sell Part of Your Assets
You probably don’t have the money to pay off the debt in your account or in your savings. But what other assets do you have? It could be an antique painting, precious jewelry or furniture, and so on.
If it’s valuable and can help offset the repayment, then it can help calm your creditors down, at least for the time being.
It may not be enough to clear the entire debt but it can help settle part of it. Note that this is a method that only works best when you are a few weeks behind or when you suspect that you may be unable to make your monthly payments as agreed.
It may seem like too much of an inconvenience to have to sell your beloved possessions but compared to a bad credits score, this is a small price to pay.
Plus, you can always buy back your assets or purchase new ones once your finances recover.
2. Find Ways to Save Money and Pay Your Debts
By looking only at your bank account balance to pay for loans or other current debts you may have, you are limiting yourself. What happens if you don’t have enough? Do you just straight go on and file for bankruptcy or do you find alternative ways to settle the debt? Want a hint?
Start by looking at your expenses. Find out what you spend the most money on. It could be your electricity, landline, food deliveries, cable or satellite, the internet, cell phones, and so on.
Plan to cut down on some costs by taking deliberate measures. For example, only turn off the lights if you are using the rooms in your house and turn them off when you leave, use water and electric appliances only when it is absolutely necessary.
Choose to eat home-cooked meals as opposed to ordering food from outside or eating in restaurants. Watch ordinary TV instead of paying extra cash for cable or satellite.
On the other hand, you could pick up another part-time job, learn a new skill and teach others in exchange for money.
It may appear like what you are saving or earning is insignificant compared to the amount of money you owe. But over time, the money adds up.
It will take a lot of will power of your part but it will help keep you from incurring debt and filing for bankruptcy.
3. Negotiate with Your Creditors
Sometimes, the people you feel like avoiding the most may be the ones who buy your ticket out of bankruptcy. Think of it this way, your creditors have had to deal with clients who just like you are facing difficulty repaying their money or honoring the agreement.
This could mean that they can help provide the best solution to help them get their own money back and to help you avoid declaring bankruptcy. Only condition? You have to be genuine and show that you intend to pay the debt.
To help you out, your creditors can decrease your interest rate, lower your monthly payments or do both.
4. Seek Consumer Credit Counseling
There’s a high chance that you will find it hard negotiating for better repayment terms with your creditors. The alternative option, in this case, would be to find an experienced debt counselor. Their job here is to reach out to your creditors and ask for favorable payment terms, including interest reduction.
The credit counselor, along with your creditors, can put together a debt management plan running over 3 years to 5 years which is enough time for you to figure out other ways to raise money to clear your debt.
5. Ask Family and Friends to Help You Out
This may seem like a long shot especially if you have a small circle of friends or if you aren’t in close contact with your family members. But desperate times call for desperate measures, so there’s no harm in trying.
Sometimes, help can come from the most unimaginable places.
Show some initiative by coming up with part of the cash needed on your own. So that when you approach your loved ones to ask for the remaining portion, they see that you have indeed made the efforts to solve the issue by yourself.
Make it clear that you aren’t asking for a handout and that you plan to repay them once your finances are back in order.
6. Do Absolutely Nothing
Are you so deep in debt you can barely figure out any action to help get you out of the situation? Have you tried everything but nothing seems to cover even the smallest portion of your accrued debts?
If the answer to these questions is yes, then sit back and surrender. Do nothing, because genuinely, there really is nothing you can do.
In court, you are what they call ‘Judgement Proof’. Whoever obtains a court judgment or sues you is unable to collect a debt from you. This is because you will generally be considered to have nothing that they can possess legally.
Since no one is allowed to take away any of your basic essentials including clothing, personal effects, food, unemployment cash benefits or normal furniture, you are protected under the ‘judgment proof’ law and won’t risk going to jail.
7. Chapter 13 Repayment Agreement
Chapter 13 repayment plan or agreement works almost the same as the credit counselor option. Only this time, in case you forfeit your agreed repayment plan, you don’t risk having the creditors showing up on your doorstep to collect.
In addition, whereas a debt counselor agreement requires that you pay the full debt under favorable terms, the chapter 13 repayment plan requires you to only pay a small percentage of your unsecured loans/debts.
A McCarthy Law PLC attorney can help you negotiate auspicious terms as provided under the law. Chapter 13 qualifies as a type of bankruptcy but it protects you such that this bad financial history won’t affect your credit score.
Disadvantages of Filing for Bankruptcy
How does filing for bankruptcy affect you? Filing for bankruptcy can have a number of downsides. These include the following:
- It will reflect on your credit report. Your bankruptcy declaration will reflect on your credit report for up to 10 years. This means that for a period of at least 10 years you will have a very hard time getting approved either for a credit card, personal or business loan. This is because they will ask that you provide your credit report as part of your application.
- Your good credit score will go down.
- All other debts may be cleared but you still have to pay outstanding taxes, service your student loans and pay for child support after filing for bankruptcy.
- Your co-signers will be responsible for your debts. Whoever it may be, your wife, friend or family member, they may have to help pay your debts in your place.
- Filing for bankruptcy is very expensive. In total, hiring an attorney and filing fees can run up to hundreds of dollars. To someone without money, this may be a lot of money.
- You have to wait for 8 years. The law states that you have to wait for 8 years before you can file for bankruptcy again. This means that should you get into trouble with your creditors again in future, you will either have to find another way out other than bankruptcy or risk jail time.
- Everyone you owe will be notified. The court will send a notification informing all those you owe, including family and friends that you have filed for bankruptcy. This is bound to bring shame and probably cause a rift between you and your creditors.
Unknown to many debtors, filing for bankruptcy comes with its own set of burdens. Burdens that you may be unaware of initially can make the experience even more grueling.
To be on the safe side, be sure to weigh your options before making the final decision.
Exploring the Above Alternatives to Bankruptcy Is Vital for Ensuring Proper Debt Management
Don’t limit yourself by only choosing one of these alternatives to bankruptcy. Try each one of the options above. In fact, you could try them separately or you could combine several of them at a time.
For example, you could ask your credit counselor to negotiate on your behalf while trying to simultaneously cut unnecessary costs and expenses while working extra hours at your job.
In the long run, it is about finding a solution that helps keep both you and your creditors satisfied. You don’t have to lose your property or go to jail and the creditors still end up with their money.
Check out this blog to learn about new developments pertaining to bankruptcy cases.