Alternatives to Bankruptcy
Bankruptcy seems to be the first thing some people consider when they find they are unable to pay the payments that are due on loans and credit cards, but this should be the last thing that is considered. Not only is it a permanent solution to a temporary problem, it will ruin your chances of buying anything else for ten years instead of the customary seven.
What are the other options? The first thing you should do when you find yourself unable to pay the payments on your loans or credit cards is to contact the creditor directly and see if a payment plan can be developed. In the case of credit cards, this involves the creditor reducing the interest rate for a certain period, anywhere from three months to one year, which in turn reduces the amount of your minimum payment. Though this keeps your credit in tact, at least once you have brought the payments up to date, the creditor will still close your account. If your account is extremely past due, many creditors will reage the account after you have set up a payment plan and have paid the first three payments on time.
If you have been unable to work anything out with the creditor, or if the plan that you worked out failed, you can consider a consolidation loan with one a debt consolidation company. Be careful with these, though, that you don’t sign with one of the ones who will hold onto your money, and therefore force your creditor to accept a settlement without your permission. A settlement not only goes on your credit report as a bankruptcy, it also leaves you with a tax liability for the amount of the loan that you did not have to pay back. On the other hand, a good debt consolidation program can help you get your debt to a manageable level and help save your credit rating as well. Of course, if your debts are in serious condition, this may not work for you, but it’s certainly something that should be considered before bankruptcy.
A third alternative is to file for a Chapter 13. Although this still falls under the bankruptcy law, it allows you to repay your debt with the assistance of a trustee who will distribute the funds for you. In addition, this will only stay on your credit for seven years instead of ten like a bankruptcy liquidation (Chapter 7). Depending on your assets, you may not have to pay all of your creditors in full, but after the period expires, any unpaid bills are “forgiven.” Like bankruptcy, a Chapter 13 prevents any creditor from calling you, attaching your wages, or seizing any property you have. For those who have a job and have failed at all other attempts to pay their debt, this may be the only workable solution. The problem is, unlike the other two alternatives, it’s not cheap. Depending on the lawyer, and you will need a lawyer, it can cost several hundred dollars. If, however, you’re about to lose your house or your car, it’s a reasonable alternative.
Technorati Tags: bankruptcy, debt consolidation, debt consolidation company
January 7th, 2007 at 1:23 pm
it says on this article *url deleted* that “it is estimated that 78% of debt consolidators see their debts grow back to original levels after the original consolidation. This is because these consumers have less savings, bad spending habits and no real determination to get out of debt.”
how many people here are in this type of situation? what’s the best way to get out of debt?
April 4th, 2007 at 3:51 am
I came across your blog from finance blog hunt contest.I know many people who are under the high pile of debt and for them debt consolidation loans are the best.
May 8th, 2007 at 4:27 pm
If you are considering bankrupty you must check into debt settlement first. Why? Because you will save pretty much the same amount of money but not suffer the severe negative effects that come with a bankruptcy. And as far as debt consolidation goes if you miss one payment on a program you can be kicked off, this is why 75% of people fail these types of programs.
May 30th, 2007 at 3:47 am
Many people who contact Clear Start have considered bankruptcy or have had concerns about being made bankrupt. It is essential that these people understand clearly what the implications of bankruptcy are and what other options are available to them, such as an IVA. It is also important to understand the perspective of the lenders - often bankruptcy is not what they want either.
However there are still many reasons why people choose to avoid bankruptcy if they can. The most commonly stated elements of bankruptcy that are undesirable are:
Loss of Assets, Lack of Control, Credit Status is Ruined after Bankruptcy, Embarrassment Over Social Stigma, Loss of Career
June 25th, 2007 at 11:10 am
If you understand how the negotiation take place to get the settlement, then you would know that it does not show as a bankruptcy on your credit report. Only a bankruptcy shows as a bankruptcy. If you do the correct job in settling, it will say paid in full.
October 1st, 2007 at 2:26 pm
The information given is superb.I like to read this blog.Towards excellent.
October 17th, 2007 at 7:07 am
Another thing to keep in mind is that the agencies that are suppposed to help you get out of debt, make their money from the credit card companies.
October 29th, 2007 at 1:37 am
I think that this is an excellent post as well, however, one should not wait until you cannot pay up to find a solution to your loans and credits. People should be more responsible with their expenditures and realize when it’s already too much. Prevention is always better than cure, as they say..
November 4th, 2007 at 2:19 pm
Great post! Debt consolidation is a tricky field, indeed.
December 8th, 2007 at 12:28 pm
This post is right on, very good information, informative and helpful.
January 16th, 2008 at 1:28 am
How about taking a loan to give up the debts? Sounds funny? No, not joking. I am serious. Loans are a good option to pay up your debts.
April 3rd, 2008 at 5:05 pm
I would say that It is also important to to have an idea about the perspective of the lenders.
April 18th, 2008 at 1:31 am
Managing Debt is essential thing to avoid bankruptcy & preventing indebtness. Debt Consolidataion is most effective in doing that. Out of many available, the most effective debt consolidation service I have found is: (link deleted) . We have been dealing with them for the last 5 months, and they helped us to consolidate all our loans and reduce the debt