Alternatives to Bankruptcy



By N2H

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Alternatives to Bankruptcy

July 22nd, 2007 by Shenron

When you are experiencing financial difficulties, it can be very tempting to file for bankruptcy. Remember however that bankruptcy should not be taken as an immediate answer but as a last resort. After all, records of bankruptcy will remain on one’s credit file for up to ten years. Try to consider the following options first before you finally decide on filing for bankruptcy:

Reduce Debt

There are effective ways for you to lessen your debt. For one, you have to cut monthly expenses in order to allow more cash flow that will be used to pay off debts. Analyze your personal budget and find areas where expenses can be lessened. Luxuries will have to take a backseat to the needs. Impulse purchases and frequent dining out can be done away with. Little steps taken everyday can have a huge impact on your overall financial health. You could also consider other ways of earning money – a part time job or a better – paying primary job for example.

Out-of-Court Settlement

It is always better to negotiate with creditors first before taking any legal action. This avoids disputes which could turn really ugly. Creditors understand that while bankruptcy is an option for the debtor with excessive debts, they risk losing everything when it is filed. Most would rather settle on a plan that would enable them to get back a portion of their money. Professional help should be sought in order for the negotiations to be handled properly.

Debt Counseling Programs

Participating in a debt counseling service is a good start in addressing your financial difficulties. A little bit like filing for Chapter 13 bankruptcy, debt counseling agencies will help you come up with a plan to pay your creditors. This option both has its advantages and disadvantages: no bankruptcy record will appear on your credit file (a good thing of course), but you will not be protected from harassing creditors if you miss a payment. A creditor may not honor your plan and you therefore have to resort to other measures.

Live Simply and Do Nothing

If you are buried in debt but are living a relatively simple life, you can do nothing about your excessive debts. Anybody who sues you will most probably take nothing from you because you do not have anything they can legally take in the first place. In ordinary cases, you can’t be thrown into jail for your inability to pay debts (except if you’ve defrauded your creditors, refused to pay taxes or willfully failed to fulfill child support obligations). So you may not file for bankruptcy if you do not have a steady income or properties your creditors can repossess. Most probably, they’ll just write off the debt and treat it as deductible business loss. After several years, the debt will become legally uncollectible and after seven years will disappear from your credit record.

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