Think About Bankruptcy Alternatives Before You File

Most people who find themselves in financial trouble

, suppose bankruptcy is the sole option. They often believe they should file for bankruptcy as soon as they realize they're in trouble. But, bankruptcy should be a last recourse. Look at bankruptcy only when you've run through all other alternatives.

Before you make the ultimate decision to file bankruptcy, think about the following options. If, after you've weighed these options, you continue to believe you have no other option than bankruptcy, you can file knowing with certainty that you had no other option.

Refinancing

If own a home and you have equity in it, you may be able to get a home equity loan. You can pay back your other debts with the money you receive from that loan. The advantage of using a home equity loan to pay your debts is that you'll get rid of all the other monthly payments and have a single, inexpensive payment every month.

Debt Consolidation Loans

If you have sufficient credit, you may be able to consolidate all of your monthly payments into one with a debt consolidation loan. But, a debt consolidation loan generally requires that you pledge some kind of collateral and that you have somewhat good credit.

This alternative is best pursued very early in the assessment of your financial status. If you wait until you begin having late payments on your credit cards, you'll probably have a difficult time getting a debt consolidation loan.

Debt Settlement

Debt settlement allows you to pay some of your creditors less than you owe them as a full and final settlement of their claims against you. Why would a creditor accept reduced settlement? Because they have a vested interesting in helping you stay out of bankruptcy. If you file bankruptcy, they'll get even less than you're tendering on a debt settlement.

While you may be able to get a debt settlement by yourself, it's to your benefit to use a good debt settlement company to help you negotiate with your creditors. And, if you decide to go this route, you want to make sure you have the money on hand to immediately pay your creditors. You will want them to close the account and report it "paid as agreed" to your credit report. A debt settlement company will assist you to make certain every part of your debt settlement gets done properly.

Debt Negotiation

Negotiating your debt is not the same as settling your debt. In debt negotiation, your debt isn't eliminated. To initiate a debt negotiation, you'll need to telephone each of your creditors and talk over your financial difficulties with them.

You'll want to explain that you're looking at bankruptcy but want to research other choices first. One option is to discuss the possibility of lowering your interest rate and setting up a payment plan that fits your current financial situation.

Many of your credit card companies will reduce your interest rate. Some may, in addition to reducing the interest rate, discontinue late fees and finance charges totally. In either of those situations your payments actually start to make a real difference and you begin chipping away the principal balance you owe on the debt. That means you'll have little trouble fully paying the debt in the time period you negotiated.

by: Harvey L Cox

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