- Bankruptcy alternatives exist, but be smart about evaluating debt relief options.
- Debt Settlement can typically get a low program payment and significant savings, instead of filing bankruptcy.
- Always seek counsel from a trusted attorney and see if you can even qualify for Chapter 7 bankruptcy.
Learn All About Chapter 7 and Chapter 13 Bankruptcy Alternatives
Although bankruptcy offers some people a clean slate, it is by no means an easy solution. Bankruptcy will destroy your credit and may possibly force you to sell your assets. It could also affect your future employment. In addition, 2005 bankruptcy reform laws made it more difficult to file for chapter 7 bankruptcy, and limited other bankruptcy rights.
If you want to preserve your credit, you will be much better off if you do whatever you can to avoid bankruptcy. Although it is not easy, it is worth the effort. Follow these steps to avoid bankruptcy.
If you want to avoid bankruptcy, get debt help from Bills.com’s trusted partners and see if you can find a bankruptcy alternative.
VIDEO: Bankruptcy - What is Bankruptcy?
Total All Your Debts
Only once you have a true picture of your debt can you take the next steps to avoid bankruptcy. Gather every bill, every statement, and every document that has an effect on your financial situation. Total up both your debts and your assets. Include your mortgage as a debt and the value of your home as an asset.
Now break down those debts into good and bad categories. Good debts are home loans and student loans. Bad debts are credit card debts, personal loans, high-rate car loans, and medical bills.
You should also list the interest rates and minimum payments for all your debts.
Reduce Your Expenses
Now total up all your expenses — everything you spend. Even the $1 you spend in the vending machine at the office should be included. Divide those two figures into necessities and non-necessities. Necessities are items you need to survive, like groceries and housing.
Non-necessities are nice things to have, but which you do not need, like that vending machine candy bar or designer sneakers.
Add up the minimum payments on your debts and the monthly cost for necessities. This is the minimum amount you need to cover your bills for the month. If you do not earn enough to cover them, then you need to find a way to reduce your minimum debt payments or necessities. Even little steps like switching from name brands to generics and canceling cable can help.
If you can cover your monthly bills, but are not making enough to pay down debt, then start cutting non-necessities until you free up enough money to reduce your debt.
If you have multiple small debts, getting rid of any one of them can be a challenge. By consolidating debt, you not only reduce the total number of bills and minimum payments you owe, but you also reduce the interest rate. So you can reduce your debt faster.
In addition to consolidating debt, you can get out of debt faster by paying more than the minimum payment every month. Funnel as much money as you can towards your debt every month.
Consult a Credit Counselor
Contact a reputable credit counselor if you need help totaling your debts, finding ways to reduce expenses, or consolidating debt. In addition to teaching you money management, they can help you qualify for a consolidation loan, whether it is in the form of a home equity loan or a personal loan. In some cases, they can help you set up a debt management program. Although there are fees, it may be what you need to avoid bankruptcy.
Consider Debt Settlement
If your debt vastly outweighs your income, then you may need to consider debt settlement. A credit counselor may be able to negotiate with your creditors to reduce the balance owed. Although debt settlement will ding your credit, it is not as big a hit as bankruptcy. Debt settlement should not be taken lightly, but it is a way to avoid bankruptcy if you have exhausted all other options.