With the slow economy, many are faced with the possibility of filing for bankruptcy. Few people actually want this mar on their credit report, and there are a number of viable alternatives that can pull you back from the brink and allow you to regain your financial footing. You may want to consider the following alternatives to bankruptcy.
Inaction
Sometimes the best action is none at all. This makes the most sense when one has no assets and no expectation of those in the near future. When you are in debt, your creditors may try to sue you to recover the money. If you have a job, they can even garnish your wages. However, if you have no assets and no wages, then it does not matter what judgment is made against you – the money simply will not be there for the creditor. The creditor may realize this and not sue you at all. After a period of time – typically seven years – the debt will be erased and you can start anew. Of course most people have assets or wages, which would make this a less attractive option.
Reducing debt
Sometimes debt seems more insurmountable than it actually is. With proper money management techniques, many individuals can reduce and even eliminate their debt, even those teetering off the cliff of bankruptcy.
The first step to proper money management is to understand your debt as well as your assets. Make a list of all of the money going out and coming in. You then want to make a strict budget, which allows you to pay off your debt. It may be slowly, but as you pay it off it will become easier and easier because of reduced interest payments. Stick to your budget. You may need to cut your spending and get rid of luxuries such as cable, an expansive cell phone plan, eating out, etc. You can also use money-saving techniques such as purchasing at discount stores, buying on sale, buying in larger quantities, etc.
Negotiation
Creditors know that they may not see any money at all if you go into bankruptcy. They may be willing to negotiate with you in order to avoid this. You can talk to them about your situation, and you may be able to come up with a reduced amount that you can afford. They may also set up a payment plan with you.
Consolidation of debt/debt counseling
You may have heard various ads and other businesses offering to consolidate your debts. This can make it easier if you owe a lot of small high-interest debts to a variety of companies. You can consolidate everything to one monthly payment, often with a lower interest rate.
You must be a good consumer when shopping for such a service. Unfortunately some companies take advantage of the situation, so make sure you find one that can give you an honest and good deal. Also, not everyone will qualify for this service.
Bankruptcy is a last resort, and there are many measures that can help you avoid such a move. Once you pull yourself back from that situation, try to intelligently manage your money to create a sustainable financial future.
Resources:
http://www.bankruptcyinformation.com/bankruptcy-alternatives.htm
http://www.usoba.org/