Bankruptcy Alternatives

BEFORE YOU DECIDE TO FILE, THINK ABOUT THE ALTERNATIVES TO BANKRUPTCY

Bankruptcy should be the last resort to getting out of debt. It will stay on your credit report for up to 10 years, guaranteeing that you will receive higher than normal interest rates on future financing close to the bankruptcy filing. Some debts will remain anyway such as recent IRS debt, student loan debt and debt incurred through fraud just to name a few. Bankruptcy may be better for someone who has little income, extremely high liabilities and no realistic way of paying those liabilities back within a reasonable time period.

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HAVE YOU CONSIDERED?

There are steps to consider prior to filing that are alternatives to filing bankruptcy.

1) Negotiate with your creditors. It may be possible to work out deals with some of your creditors. Explain you current financial situation, your inability to realistically pay the entire debt and your willingness to pay a percentage of the debt over time. I have found that most credit card companies are rarely willing to make such arrangements. However, you never know until you ask. They may be willing to work with you if they feel that a bankruptcy is looming in the distance. They no that if you file bankruptcy, they will likely receive nothing in return.

2) Debt consolidation loans. This may be a way to payoff all of your unsecured credit card debts with one loan that can actually reduce your monthly outlay. If you do this type of consolidation loan, make sure that you do not use your credit cards during your repayment term. This can cause you to fall even further behind by incurring new debt on credit cards that were just reduced to zero by the consolidation loan. Caution! Do not take out a consolidation loan against your home. You may have just turned dischargeable credit card debt into secured debt that can cause you to lose your home if not paid back timely.

3) Consumer Credit Counseling Services. CCCS may be able to negotiate effectively with your creditors even after your efforts have failed. Those efforts may include reducing financing charges, lowering monthly payments and updating past due accounts. For credit counseling to be effective, you must be able to make consistent payments over a long period of time (40 - 60 months).

4) CCCS will also provide educational material in an effort to help you avoid financial pitfalls in the future. Make sure that you are aware of the charges that your credit counseling services charges and to what extent your payments will be going to your creditors.

5) Handling the debt on your own. If you have sufficient income, can budget effectively and can communicate with your creditors, you may want to handle the matter yourself. You will have to contact each creditor in an effort to work out some form of payment arrangement. While some creditors will be open to this offer, most will not be interested. Unless you can make arrangements with all of your creditors, there is nothing preventing one creditor from filing suit and collecting the debt through legal means.

SOME OPTIONS TO SERIOUSLY AVOID AT ALL COST

Financial pressure can cause individuals to make decisions that are not in their best long term financial interest. One option to avoid is the payday loan or title loan. The interest rate is often 200% or more annual percentage rate (APR). Consumers often struggle to pay these loans in full and often will extend the loan for another term. This debt cycle escalates to the point where the consumer is paying more in loan fees than the amount that was actually borrowed.

Predatory consolidation loans should also be avoided. A common predatory loan is a refinance of an existing loan that is packed with excessive fees, contains a higher than normal interest rate and provides little or no benefit to the borrower. The pay back on these loans in terms of fees and costs may actually exceed the original amount of the loan. The attempt to end the debt may actually increase the total debt.

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