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Are There Alternatives to Bankruptcy?

Updated on March 17, 2013

In many cases, individuals in financial crisis turn to lawyers for advice and find they are immediately recommended bankruptcy. What they don’t know is that there are actually a myriad of other alternatives, many of which are often overlooked. While bankruptcy is certainly one of the best options for those with unmanageable debt there are others to consider first. Here are a few to keep in mind as you work with your lawyer.

Debt Settlement

Many credit companies, upon realizing you are having difficult financial times, will offer you a debt workout or settlement plan. Many will offer a debt workout when they see you are very far behind on payments while others may only offer debt workouts as a last resort when they realize you may be filing for bankruptcy.

In the end, they offer you a negotiated settlement amount that is usually much lower than your original balance. For example, if you owe $10,000 they may offer to settle your account if you pay them $3,000. In many cases your credit company will allow you to make payment arrangements instead of asking you to pay that $3,000 in one lump sum.

Alternate Payment Arrangements

What if your situation is only temporary? Maybe you were ill and plan to return to work in a month or lost your job but have another one lined up. In this case you might want to consider calling your credit or loan companies and asking them to work out some sort of alternative payment arrangement.

Even your car company may be willing to allow you to skip a monthly payment, instead rolling it to the end of your loan. Your loan repayment period may end up being longer than originally agreed upon but you will avoid penalties and late fees associated with not making a payment on time.

Debt Consolidation

You may, if your unsecured debt amount is relatively low, consider taking out an unsecured personal loan in order to consolidate your debt into one place. This means you’ll take out a new loan with a new interest rate and use it to pay off your existing debts.

In many cases people find that this works because they have a better interest rate or payment plan than the one that exists with the credit card company. The problem is that while the interest rates and payments are lower you may end up paying more money in the long run due to the way the interest accumulates over a longer repayment period.

As you can see, these options may not be the best for individuals with large amounts of debt or for those with a very limited income. It will be up to you and your bankruptcy lawyer to decide which route is best, whether you end up attempting to make payment arrangements or taking the bankruptcy means test to determine which filing method you qualify for. Whatever you decide, make sure you take action. Ignoring your problems will not make them go away.


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