Alternatives to Bankruptcy That May Work for You

There are a few ways that you can work to avoid bankruptcy. Some of these options are better than others, but any of them are better than bankruptcy (at least as far as your credit and future credit is concerned).

1. Pay off Debts to Avoid Bankruptcy – One way to avoid bankruptcy is to simply re-budget and start paying them off. Of course this is really only an option if you aren’t already behind on your payments. Our current experience is that only if you stop paying can you receive any significant relief from most credit card companies, although some may reduce your interest slightly without you having stopped payments.
2. Take Part in a Debt Management Plan – A debt management plan may be a solution for some. With this type of plan negotiators work to reduce the interest rates on loans/unsecured credit so that balances are reduced faster. This is really only a good option if you have a small amount of debt (under 10K) and can afford to keep up with the payments.
3. Take out a Consolidation Loan – A consolidation loan is another viable option. The problem with this solution is that it can last for years, and you have to either have the credit or security (your house) to qualify for the loan. With a consolidation loan all payments are lumped into one loan payment to reduce the amount paid monthly. Again this is most suitable for smaller amounts of debt (under 20K depending on how much you can afford to pay and how long you want the loan for). Large consolidation loans can last for 8 – 10 years, and they do negatively affect your credit rating for that time.
4. Debt Settlement/Debt Negotiation – Another solution is to work with a credit counsellor and go through a debt settlement plan. With this type of solution the actual balances of your debts are negotiated down. This makes it more suitable for larger amounts of debt (must be over $10,000 in unsecured debt just to qualify for this type of program). With the reduced balances, you usually manage to reduce you payments and complete the plan faster than a debt management plan or consolidation loan. Debt settlement will affect your credit rating in the short term, but considering it usually lasts just 20 – 30 months, this type of plan can be recovered from faster than the previous 2 solutions. Our firm’s experience is that there are many scam debt settlement companies that take your money, but if you are sued by the credit card company, they do not and cannot represent you. Law firms that do debt settlement work appear to be the best solution because they can represent you if you are sued by the creditors, and there is the State Bar Association that governs their conduct. This would likely take a fund of cash available to settle this debt.