When the bills keep piling up and you feel like you’re underwater, bankruptcy may seem like the only option. However, there are several bankruptcy alternatives that can enable you to get your finances back in order and help you pay down your debt.
One bankruptcy alternative is to contact your creditors and ask them to work with you on a repayment plan. Your creditors may be able to lower your interest rates or monthly payments in order to pay off your bills. Creditors don’t like dealing with bankruptcy, and may more agreeable to creating a plan that is beneficial to you both.
If talking to your creditors feels intimidating, a credit-counseling agency may be able to help. The agency will contact your creditors and create a repayment plan for you based on your salary and debt. If your creditors are agreeable to it, you can make one payment to the agency (for a fee) and the agency will then distribute the money until your debt is repaid. The disadvantage of this plan is that if you miss even one payment, your creditors can terminate the arrangement. You should also do your research when selecting a credit-counseling agency, as some charge higher fees than other.
Consolidating your debt is another bankruptcy alternative. Debt consolidation loans let you combine all of your outstanding debts into a single loan, often with lower interest rates and reduced monthly payments. Transferring debt to a credit card with lower interest rates is another option—just keep in mind that the low interest rates may be short term and could go up once you are no longer a new customer.
If you have equity in your home, you could take out a home equity line to pay off your debt. Exercise caution when using this option—your lender could repossess your property if you default on your home equity loan.
Another bankruptcy solution that can be used as a last resort is to default on your debts. If you have no exempt property or income, creditors have nothing to take from you. And, because of the Fair Debt Collection Practices Act, you cannot be harassed by creditors to repay your debt. Keep on mind that any debt defaults will remain on your credit record for seven years, affecting your credit score.