The decision to declare bankruptcy can be a difficult one. Bankruptcy is not a one-size-fits-all solution. Here are some of the alternatives to bankruptcy: Budgeting, Debt Consolidation, and Debt Settlement.
Budgeting
First, try to find a way to pay your bills on your own. Only then can you calculate how long it will take to become debt-free. Design a feasible budget that pays more than the minimum payments toward the debts. At the same time, you cannot sacrifice the health and welfare of yourself or your family. Dependent upon your income and expenses, a budget that pays at least triple the minimum monthly payments toward your debts might years and years to pay off completely. Good budgeting is the best and first alternative to bankruptcy.
Debt Consolidation
If you have excellent credit or a good working relationship with a lender, then debt consolidation may be a good option for you. Debt consolidation entails taking out a new loan to pay off multiple, smaller debts. Those debts are therefore, in essence, consolidated into one larger debt. You should only consider this option if you obtain favorable terms: either a lower interest rate or a lower monthly payment.
Unfortunately, for most people, debt consolidation is not an option. As stated above, debt consolidation requires very good credit or a long-standing relationship with the consolidation lender. If you are considering debt consolidation, a good place to start might be a regional federal credit union, like Navy Federal or PenFed.
Debt Settlement
If you have one or two large debts, then consider debt settlement, which is an agreement with a creditor to pay less than what is owed as settlement in full of the debt. Debt settlement usually requires a sizeable lump sum of cash, and in many cases, a monthly payment. There are many pitfalls to debt settlement. You should consult a debt litigation attorney if you are considering debt settlement.
Many of my bankruptcy clients have tried debt settlement companies and were simply ripped off. There are a lot of companies that will take your money and produce zero results for you and trash your credit in the process. If you feel debt settlement is right for you, check up on any professional or company you are considering retaining with the Better Business Bureau. Debt settlement through a debt settlement lawyer is much different.
In addition, any debts you settle will be “forgiven debt” and therefore taxable income. Talk to a lawyer to assess whether debt settlement is right for you.
Consider the Alternatives to Bankruptcy
If none of the alternatives to bankruptcy are right for you, and you are treading water or sinking financially, then bankruptcy may be your best option. But every situation is different. Talk it over with a dedicated debt lawyer who can help you assess your options.