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What are Bankruptcy Alternatives?


Before throwing in the towel and filing, be aware that there are bankruptcy alternatives that may help you reach a less damaging resolution to your financial problems. Most of the options center on negotiating a settlement with creditors, developing a payment plan, and getting your cash outflow under control.

Alternatives to bankruptcy

The first alternative to bankruptcy seems rather simplistic, and it may be, but it entails not putting you and your finances in a precarious situation. Pay close attention to your bills, exercise a little self-discipline, and control your spending. Keep a record for one month, chronicling where every penny goes, and you will be able to find expenditures you can reduce or eliminate. However, if you are so far in debt that a not even a cat has enough lifetimes to pay it off, consider these bankruptcy alternatives.

Debt Negotiation

Those to whom you owe money want their money; it is as basic as that. They are, however, business people, and as such may be willing to negotiate new terms on the amounts owed, or offer an amount reduction under certain circumstances. Not every company is willing to do this, but some are. If this option is of interest, there are two ways to pursue it. In the first, you conduct the negotiations yourself, make the phone calls, submit the paperwork, and try to come to a workable solution. The second method entails using a firm or organization specializing in debt negotiation, and rely on them to handle the transactions; these companies may or may not charge for their services, but research these companies as thoroughly as you would any professional service provider.

Debt Consolidation

Debt consolidation is the process of combining all your debt and making a single monthly payment. Depending on your financial situation, this can be accomplished by taking out a loan to pay off the old debt, and you repay the new loan. Another method is to take out a home equity loan to pay off the debt. To qualify for this you must, of course, own a house. The amount you for which you would be eligible depends on how much equity you have built up in the house. Repayment rules on the home equity loan are quite specific, and they need to be understood before acquiring this loan.

Debt Management

The debt management process involves working with a credit counselor to help you bring your expenses and spending under control, developing a repayment schedule with your creditors, developing a budget, and sticking to the budget. Some credit-counseling firms may try to negotiate a debt reduction with your creditors, or offer a debt consolidation program. Before settling on a credit-counseling firm, learn as much as you can about fees, charges, restrictions, and limitations that may be in any contract you would sign.

Other than an out-of-court settlement, which is really a form of debt negotiation, these are the primary bankruptcy alternatives available to consumers. If you are in a position where bankruptcy may be necessary, consult with a bankruptcy attorney to learn all your options and what would be in your best interests.

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