Law and Money: The Alternatives to Filing for Bankruptcy

Tuesday, May 23, 2017, 6:00 AM | Leave Comment

Bankruptcy is the final answer to resolving debt. It is an irreversible decision with lasting consequences for your finances and future purchases.

Bankruptcy should be your solution when nothing else is solving the dilemma. Prior to filing for bankruptcy, debtors should consider these alternatives first.

  • Talk to Creditors

    It’s surprising to hear that creditors want to settle with debtors rather than dealing with courts and bankruptcy. Besides, any amount is better than nothing.

    Therefore, negotiate with creditors over the phone and/or in person to agree on a settlement.

    If both parties agree to the chosen amount, pay the new amount owed ASAP. While more money ends up in your pocket, the credit score takes a hit due to the settlement.

  • Credit Counseling

    Alternatively called debt counseling, credit counseling is a program that assists consumers in relieving or eliminating debt.

    A counselor will provide a debt management plan based on spending habits and incoming income.

    Consumers who follow this plan will see a significant change in finances. Debt plans also stops debt collection, lowers credit card interest rates, and lowers selected fees.

  • Consolidation

    Shrinking more than one debt source into one debt source is beneficial. Debt is easier to control and manage, yet it might tempt debtors to spend because of the easier transition.

    Still, a dedicated person views consolidation as the gateway out of debt. Just pay the one bill each month until paid.

  • Home Equity Line of Credit

    An equal, yet riskier consolidation method is bargaining your home’s equity to pay bills.

    Lenders provide a line of credit (cash) in exchange for home ownership. The line of credit, however, is a loan. Lenders expect this loan repaid.

    Failure to repay the loan results in the lender evicting you from the house. In closing, a home equity line of credit is like the mortgage process.

  • Liquidation

    Jewelry, electronics, vehicles, land, and homes are great valuable possessions to sell for emergency cash.

    Liquidation is also about collector’s items and bank assets such as coins, antiques, stocks, and bonds.

    Sell clothes and furniture on eBay and Amazon if push comes to shove. You’ll receive cash for these trades, yet you’ll lose the emotional attachment toward these items.

  • Judgment Proof

    If none of these suggestions applies to your situation, you could be judgment proof.

    Judgment proof debtors don’t have the finances to pay off debt and no valuable assets to sell. Therefore, you can’t repay creditors. Creditors can’t collect because there’s nothing to collect.

    A bankruptcy attorney can assist with additional details about whether a person is judgment proof.

Only when these alternatives fail should you lean on bankruptcy. Bankruptcy will bail you out of a messy financial situation, but it is a stressful process. The consequences hurt you and your creditors long after discharge.

Attorneys cannot stress enough the importance to review all options before turning to bankruptcy.

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