Alternatives to bankruptcy.

Know your options.

There are several possible alternatives to bankruptcy for those that run into financial trouble. Bankruptcy is not the only option. It is important to consider these options in the context of the creditors they are dealing with and make sure they do not do anything that places them in a worse situation. In some cases, bankruptcy alternatives might have an negative impact on a bankruptcy filing down the road if the alternative route does not work. The primary alternatives are out of court settlement with creditors, debt counseling services, and debt consolidation loans.

Out of court settlement

Instead of going through the tedious process of filing bankruptcy, settling your unsecured debt with your creditors at a reduced amount is a possibility. Most individuals may find this to be a very difficult process. They may elect to contract an independent firm that will help you negotiate with your creditors. Is is crucial that these negotiations be handled personally or with the help of a professional, as these actions there can have negative consequences on the borrowers credit rating if not done properly.

Debt counseling services

Debt counseling services can be a viable alternative to bankruptcy when faced with serious financial difficulties. The services may be able to consolidate your monthly payments and obtain payment/interest reductions on your unsecured debts. Caution should be used when enlisting a counseling service, as it will most certainly affect your overall credit rating. Another issue with debt counseling is that many people would not qualify for these services, as their financial situation has deteriorated to the point where the services would not help debtor in the long run.

Debt consolidation loans

When there is sufficient equity in one’s home, borrowing against the equity to consolidate one's credit card debt is certainly a viable option. You need the capacity to pay the new mortgage and careful consideration should be given to making sure that you have not put yourself in a worse position. Defaulting on an equity line or mortgage has far more severe consequences (read foreclosure) than being delinquent on your credit cards.

 

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