While for many people bankruptcy is the best option, it’s important to look at other alternatives that may help you avoid filing bankruptcy. Its also important that you understand its not always possible to avoid filing bankruptcy, so for the purpose of information, I’ve provided you with a few things you can try.
Debt Management Programs
You may have heard of debt management programs. Generally they claim they can reduce the balance you owe to some of your creditors. This is fine for them to do but it doesn’t always work. The reason is that the law doesn’t require your creditors to accept a reduced amount and in fact many will not. If they decide not to the creditor is free to push forward with collection. This can include getting a judgement against you and a potential garnishment.
Many debt management firms require that you make a monthly payment to them. They hold the payment for several months while they negotiate with your creditors to accept the settlement offer. If they have success they release money to the creditor for the settlement and keep a percentage as their fee.
This option can be very helpful for some people, but you should definitely do your homework first. Research the company to see if its a for-profit or not-for-profit company. Does the agency issue you a loan to cover the cost of paying your debt, or do you pay a fee to the agency? How do they handle creditors that will not settle? There are many illegitimate agencies out there, but there are also some legitimate companies that will manage your debt for a low fee. Before enrolling in any Debt Reduction Program consider calling the Better Business Bureau and making sure they are who they say they are.
Selling Real Estate or Personal Property
It may not be possible but selling things is a potential option. Selling your belongings can take a toll on you emotionally and leave you feeling like you have nothing. However, if you can do without it, selling real estate and personal property may be helpful. If you have this option, selling things might provide additional disposable income to pay towards debt. Once you’ve liquidated assets you can start clean and learn to spend without the use of credit cards or the need to acquire personal loans. In the event you have to file bankruptcy remember that in both a chapter 7 and chapter 13 bankruptcy your primary residence is an exempt asset so you keep it.
Borrow Money from Family if Possible
Money, family and friends don’t always mix well. However, if you are in a time of desperate need, don’t be afraid to ask your family and friends for help. Instead of getting a loan from a bank and having to pay interest on the loan, you may be able to borrow from family and friends and come up with a reasonable monthly plan to repay what you borrowed.
Refinance Your Home Loan
If selling your home is not an option for you, try refinancing your loan to get a lower interest rate and lower your monthly payments. This will substantially decrease the burden of trying to make ends meet and decide what debt takes priority over other debt. You may believe that you have no chance of lowering your interest rate by refinancing, but this simply isn’t always the case. Don’t hesitate to speak with your lender about this option as many lenders are willing to lower your monthly payments so that you’re able to satisfy the terms of your mortgage. If you find that after you refinance your home you still need to file bankruptcy you can reaffirm this loan and continue making payments. Again, you keep your home even though you file a bankruptcy.
Cut Back on Spending
Another trick used to avoid filing bankruptcy is to look at your budget. We often don’t realize how much we spend. Two dollars here, three dollars there. It all adds up. Instead of spending those few dollars at Starbucks, drink coffee at home. Instead of paying a gym membership, workout at home. Instead of going out to eat, cook at home. Take note of what you spend and you might be astounded at how much you can save by making small changes. Think about what you really need to survive, and what spending is really in the “want” category.
If You Just Cant Pay Your Bills
If you’ve tried everything you can and its just not working filing bankruptcy is a great option. Sometimes a person simply exhausts all options and the chance to avoid filing a bankruptcy just doesn’t make sense. If this is you don’t be hard on yourself. Bankruptcy isn’t the end of the world. What it is is a chance to make a dignified fresh start. Its also a way to stop garnishments, save your home and to begin the process of rebuilding your credit.