Alternatives to Filing For Bankruptcy

Bankruptcy is far from a simple answer to rising debt. It has a profoundly negative impact on your credit score, can result in the loss of valuable possessions, and can make it extremely difficult to secure new bank accounts, credit cards, or loans. Having such a blight on your credit record can make moving on with life after bankruptcy – buying a car, renting a house, getting insurance, or even finding a new job – more challenging than ever.

What are some alternatives to bankruptcy?

Considering the far-reaching, long-lasting, negative implications of bankruptcy, it should be the last step taken after every other option has been exhausted. So what are some alternatives to bankruptcy?

Sell Your Assets

When you file for bankruptcy, you risk losing some of your most valuable assets. With this in mind, an alternative to bankruptcy would be taking a proactive approach to your financial situation by selling the items that you no longer use or you can realistically live without. If you have more than one car, consider selling one and carpooling or using public transportation for your commute. Look around your house and decide which items of value you’re willing to part with, including jewelry, furniture, and electronics. You most likely own a number of items that other people would be willing to buy from you. Use the proceeds from the sale of your assets to pay down your debt.

Consolidate Your Debt

If your debt is spread out across many sources and you’re struggling with high interest rates, consolidating your debt may be a smart alternative to bankruptcy. The goal of debt consolidation is to lower your overall costs by reducing interest fees and lowering the total amount of your monthly payments. For example, if you have multiple credit cards with high interest rates, consider transferring your balances to one card with a low APR. Make sure that the APR is not higher for balance transfers, and also ask the credit card company about transaction fees that may be charged.

Negotiate with Creditors

If you have some income but are finding it impossible to make all of your minimum payments each month, negotiating with creditors may be a viable alternative to bankruptcy. Many creditors would rather receive some portion of the debt that you owe than to have your debt completely discharged when you declare bankruptcy. Call your creditors to talk about your options. You may be able to negotiate a better finance rate or better payment terms. Some creditors may even agree to settle your debts for less than you owe.

Seek Help from a Debt Counseling Agency

You may not be comfortable with the thought of negotiating with creditors or collection agencies – especially if you’ve been receiving harassing and menacing phone calls from them. If so, seeking professional help from a reputable credit or debt counseling agency may be your next best alternative to bankruptcy. These agencies will look at your financial situation and work with you to lower your debt through a debt management plan (DMP). A DMP can help you to repay your debts over a period of time through reduced payments, fees, and finance rates. Over time, your financial picture will look far more promising.

It is critical to understand that bankruptcy is not a simple solution to one’s financial hardships. There are a number of alternatives to bankruptcy that can ease the burden of growing debt without ruining your credit or threatening your most valuable assets. Take some time to investigate the many options that are available to you, from consolidating loans, to communicating with creditors, to seeking the services of a debt counseling agency. Considering all of your financial options today will give you a brighter financial outlook tomorrow.

Thank you to Celine L. Todd for this "Alternatives to Bankruptcy" article.

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