Every bankruptcy alternative should be explored prior to filing personal bankruptcy. Although bankruptcy protection can halt creditor collections and stop foreclosure proceedings, debtors unable to adhere to their repayment plan can fail out of bankruptcy and lose everything. Filing any chapter has long-lasting and detrimental effects and will remain on your credit report for ten years.
Determining which type of bankruptcy alternative is best suited for your needs requires a bit of research. Several options exist including credit counseling, debt consolidation, debt settlement and budgeting.
Budgeting is one of the most effective ways to avoid bankruptcy, yet it is the most under-rated remedy. A large percentage of Americans live paycheck to paycheck and pray that no unexpected expenses or emergencies pop up. While some people simply do not earn enough to make ends meet, many people are in financial trouble because they don’t pay attention to where they are spending their money.
A simple, yet effective way to review expenditures is to carry a small notebook and record every penny spent. From the cup of coffee to the fast food lunch and the cart of groceries to the tank of gas, every expense should be accounted for. This simple exercise can quickly reveal areas where cutbacks can be made.
Budgeting does require self-discipline. In order to be successful, you will need to thoroughly review your finances and create a plan to get out of debt. Plenty of information and budgeting tips can be found online and they don’t cost a dime.
Another popular bankruptcy alternative is debt consolidation. Generally, debt consolidation loans are reserved for homeowners. However, some lending institutions will provide funds to consumers with decent credit or those who have a qualified co-signer.
Debt consolidation involves taking out a loan and transferring all outstanding debts into that loan. Using the equity in your home, lenders provide a second mortgage and use the property as collateral to secure the note.
Home equity loans are not without risk and serious consideration should be given to this bankruptcy alternative. If you become delinquent on the second mortgage, the lender can initiate foreclosure proceedings.
Additionally, home equity loans are generally paid over a period of 10 to 15 years. In the long run, you will be paying more for the credit due to the extended terms. Take time to calculate the true cost of debt consolidation before putting your house on the line to repay creditors.
Debtors owing more than $10,000 in unsecured debt may want to consider debt settlement. This bankruptcy alternative involves negotiating with creditors to pay less than is owed on the note. Debtors can attempt to negotiate deals on their own, or retain the services of a professional debt settlement company.
Credit counseling is a relatively easy and affordable bankruptcy alternative. Many people struggle with finances because they were never taught how to manage money. Credit counselors provide financial education and can help you get back on track. Many credit counseling companies can also assist with creditor negotiations.
The new bankruptcy laws implemented by Congress in 2005 require debtors to obtain credit counseling when seeking bankruptcy protection. If you are considering bankruptcy, utilize the services of approved credit counseling agencies through the U.S. Trustee Program.
You might be able to avoid bankruptcy by participating in credit counseling. However, if you have no choice but to file, you will meet the requirements of the Bankruptcy Abuse Prevention and Consumer Protection Act by obtaining counseling through one of their approved agency.