10 Bankruptcy Alternatives

There are different circumstances that lead people to find themselves in great financial difficulties. Going bankruptcy is a horrible part of the debt. While many people are aware of how bankruptcy works, they are not aware of the fact that there are lots of alternatives to bankruptcy.

Sometimes debt can be so massive that people find bankruptcy as the only way out. Bankruptcy can have a devastating impact on your credit score. So, it is better to look out for alternatives before filing bankruptcy. Here is a list of 10 bankruptcy alternatives to free yourself of debt.

 

1. Consolidate debt

If you believe that the financial crisis you are having recently would go away within a stipulated time, you need to consider using some alternative debt solution. That’s because bankruptcy hugely damages your credit rating. Also, it means your properties and assets may be disposed of so as to cover repayments.

One of the best alternatives is to combine debt. Sometimes it becomes easier for repaying debts when a single payment to a creditor becomes necessary. Here are some debt consolidation options.

Make use of a debt consolidation loan – A debt consolidation combines all the debts into a single loan. Now, the debtor owes the same amount of money. But, the only difference is in terms of the monthly payment and interest rates, which are quite lower compared to separate creditors.

Shift debt into a credit card with lower interest – There are some companies that provide lower transfer rates to brand new consumers. This way, the interest rates are kept low until full repayment of the debt is completed, the debtor pays less amount of money as interest over the duration of repayment. The benefits are pretty much similar to a loan with low interest.

Merge with a home equity line – If the debtor has equity in the home, a good way to combine debt is through the home equity line. The debt comes with low interest and tax deductions. However, be cautious when you are about to secure a loan against the property because if you default on the line, the lender has the right to take the property.

 

2. Create debt management plans

When it is difficult to transact with creditors, you may hire a credit-counseling agency who would work on your behalf and create a debt management plan. Depending on your debts and income, the agency creates a repayment plan. If the creditors comply with the request, you can make a monthly payment to the agency.

Against a minimal fee, the agency would disburse the money among the creditors until settlement of the debt is over. However, a conflict of interest may exist. A debt management plan is a great solution for you if you have a steady income and disposable income.

Also, debt management plans require you to have a thorough look at all your finances. That’s because it gives you a clear idea about the extent of disposable income you have to pay back to the lenders. After you have sorted the amount, you have to decide upon a lucrative offer that you can give to your creditors as revised monthly repayments.

You can evaluate and exercise these things on your own, or employ a debt management agency to undertake the task. Debt management firms work as a liaison between your creditors and you, which is always helpful. However, they would charge a fee for their services.

Sometimes a debt management plan does have certain disadvantages. If by any chance a debtor misses a payment, the plan could be terminated by the creditor. Another major disadvantage of filing for bankruptcy is the fact that it remains on the credit record of the debtor for up to 10 years.

 

3. Work with your creditors and ask them to help you

Another great bankruptcy is asking your creditors to help you in creating a repayment plan. It is certain that your creditors would like to have some amount of money rather than not having at all from you. Let your creditors learn the fact that you are dealing with some financial problems and want to avoid bankruptcy.

Make it an effort to express your willingness to pay back the debt. Ask your creditors if they can ease the burden of debt by decreasing the interest rate or lowering the monthly payment. It is interesting to quote that many banks and credit card companies have specific programs designed for these situations.

However, you enter these programs make sure that your interest rate and monthly payment actually go down. Or else, you can get stuck with a higher minimum payment. Many creditors seem to consent when they find that bankruptcy is the only option left with the debtor.

The chances of a debtor filing for bankruptcy tend to motivate certain creditors to agree on requests of a lower monthly payment, reduce the interest rate, or create a repayment plan for a longer period of time. Now, that’s a better option for the creditors rather than the debtor filed for bankruptcy.

Sometimes, it takes your time and patience, but creditors agree to settle the debts for any one of the options aforementioned. Unsecured creditors would certainly settle your debt for pennies other than winding up with almost nothing when you file for bankruptcy.

Remember that a successful negotiation with the creditors can result in settling about 25 to 50% of the accumulated debt. However, it is better to start with something lower, say about 15%. This way, the creditor could make some counteroffer.

 

4. Try liquidate your assets

Can you go to places without your personal car if it has to be sold for some quick money? What about some jewelry, electronics, or something more precious? Or, maybe you have some bonds or stocks that have significant value. Liquidating or selling your assets lets you pay off your debts easily and quickly.

But, the toughest part of such action is the breaking down of the emotional attachment that you have made with your possessions over a period of time. Yet, your heartache will be no more after you have become stress-free and debt-free. Try to sell whatever you can to use the money for paying off your debts.

Keep in mind to take action once you notice you are unable to make payments. If you wait for too long and you are late on your payments, you might not be able to catch up and avoid further action from the creditors.

Whatever you need to sell off, electronics, or jewelry, you can do that on eBay, Craigslist, or in your front yard. Some people may find it awkward, but that’s a radical way of avoiding bankruptcy. Many people won’t be able to live without their possessions.

But, they should keep in mind that the situation is only temporary. This way, you can spare your credit history and avoid bankruptcy. Selling your personal assets allows you to pay your debt and saves your credit rankings. This is the common route many people tend to take.

Hence, think carefully before you opt to sell off your assets quickly if this means to fix your current scenario temporarily. Although this common option is accepted by most people, it could be dangerous for your future endeavors. Selling your properties or assets may assist you for some time, but it could cripple you in the near future.

 

5. Consider seeking help from family members or friends

While it is not recommended to borrow money from friends or family members, it is considered as another option to avoid bankruptcy. It is true that disputes over money tend to destroy or damage relationships. But, if correctly implemented, there are certainly good things about it.

First of all, calculate how much money you need to save yourself from bankruptcy and evaluate how much you are able to contribute on your own. Then only, you can ask for some help from your friends and family to fill up the difference. Remember that borrowed money can create several problems and even breaks a good, healthy relationship.

Don’t just go in front of them and ask for money. That’s quite absurd. Instead, develop a proper plan and work out on several things like how you are going to repay them, and so on. To remain precise and professional in your plan, have a detailed plan in writing. As such, your family and friends would be more comfortable and the chances of lending you money would increase.

Don’t hide anything from them. Disclose that you are on the verge of getting bankrupt and need their assistance. At the same time, there should be honest in yourself and you should consider a few important things that might prove fatal in the near future. Don’t forget that you need to return them their favor in due time.

 

6. Lower your expenses and make changes to your lifestyle

When you curtail your expenses and modify several things in your lifestyle and budget, it helps you save money that can otherwise be applied to your recent bills. This is not just another way of avoiding bankruptcy, but a good idea to repair your financial condition and help you remain free from stress.

Hence, you need to have some kind of budget and stick to it. You may find it daunting to create a budget, but it is really important to have detailed information about your cash flow. You need to have a clear picture of how much money is coming in, how much is going out, and how much you can spend.

Budgeting is a normal operating procedure and it should be there regardless of what your current financial condition is. Of all the easiest things you can do that will help generate more money in your financial budget to pay your necessary bills is to keep your expenses low.

Some of the things may include selling your big house or canceling some of the streaming subscriptions. Thoroughly analyze your bank statements and find out what things you have spent money that you don’t need. These may include eating out, costly annual subscriptions, and other things you don’t need.

Also, find out the things you have forgotten, but still paying for them. Watch out for utilities, insurance, and other costs incurred monthly or annually and find ways to pay less, or discontinue them. Any money you spend aimlessly would go down to pay your debt and avoid filing for bankruptcy.

 

7. Credit counseling

When you fail to negotiate with your creditors and the whole process doesn’t work, it is time to consider for a credit counseling firm. Taking assistance from credit counselors is a great way to avert bankruptcy. Credit counselors help you design a debt management plan with meager payments you can afford to pay.

If the credit counselor is able to work with the creditors and they accept to lower your interest rates and payments, this could prevent you from filing for bankruptcy. Even when you have made up your mind to file bankruptcy, the existing law requires you to consult a credit counselor.

Federal bankruptcy courts tend to maintain lists of counselors and you need to consider contacting them before filing. Reputed counseling agencies work with debtors and creditor to pay off the debts. Being a debtor, you deposit money into a specific account per month for a few years.

And, the counseling agency makes use of the money to pay the creditors in accordance with the conditions laid on the plan. One of the biggest advantages of working with a counseling agency is the fact that your credit history won’t show you are bankrupt.

 

8. Refinance or restructure your mortgage

When you own a house and paying your mortgage, it is similar to paying a large bill. Hence, if you are paying for your home, another good method is to refinance or restructure your mortgage. If you arrange for a new mortgage payment plan, you can save some money for paying down some of your debt.

It is totally worthwhile if you want to get your home foreclosed or avoid bankruptcy. There are two normal ways through which your revised mortgage can help you in avoiding a bankruptcy filing. First, you have to negotiate with your housing lender to modify the mortgage under the new plan.

It is better to devise a temporary payment schedule without altering the terms of the original mortgage. The second approach would be to refinance your mortgage. This includes applying for a lower interest rate spread over a period of a long time. The money saved from the front end can be used to pay off the remaining debt.

If restructuring your mortgage helps you avoid bankruptcy, you need to make your way to the lender and see for yourself whether they are willing to help create a new payment plan. Also, they can agree to a kind of temporary repayment system until you are able to mend your financial condition.

You can refinance your mortgage as well, which means you can apply for a new one with low-interest rates and long paying period. However, this option requires a good credit history because the bank will be giving the new loan.

 

9. Find ways to earn extra income

Although the thought of working more than usual may sound unappealing, you should know that the situation is temporary. Finding another job or other ways of earning more money helps you generate income that can substitute bankruptcy. Look at this option as a way to avoid bankruptcy and not to spend on unnecessary things.

There are plenty of ways to earn more money, particularly in the digital world you live in. Driving, shopping, or other kinds of delivery and shopping services can be found everywhere, even in rural areas. All you have to do is search for them and choose one that suits you fine.

You may even try some old-school methods you find in the local newspaper. These jobs may include pet-sitting or walking them around, baby-sitting, and delivering the newspaper. Whatever you do, make sure you have enough energy and time to do them. Make a target of how much you want to earn and follow them strictly.

 

10. Default on debt

When a debtor is left without income or property, another bankruptcy alternative is to stop paying creditors. As such, creditors may want to recover the debt, but they must abide by the prevalent rules and regulations of the States.

Creditors are forbidden to engage in abusive debates and certain inappropriate behaviors such as calling numerous times daily, make use of fraudulent methods to collect money, and so on. If the creditor’s action violates certain regulations, the debtor may go for monetary damages.

Creditors may collect the debt through court verdicts. The creditor isn’t allowed to sue the debtor when it becomes impossible to collect the debt. The defaulter remains in the defaulter’s credit history for a few years.

 

Conclusion:

So, that was all about the different bankruptcy alternatives you can take help from. Now, if you need to file bankruptcy, at least you would have the peace of mind and satisfaction knowing that you have explored the aforementioned alternatives. After the process gets completed, you can rebuild your credit score.