What Are My Bankruptcy Alternatives?

If your debts have become so large and unmanageable that you feel like you're in over your head, you might be tempted to file for one of the three types of bankruptcies available to individuals and business owners in the United States.  After all, that would mean getting all of your creditors off your back so you can start over and build yourself up again. 

 Although that could conceivably happen, the process doesn't often unfold as quickly or as smoothly as you'd like.  In addition, any bankruptcies that you file will stay on your credit record for 7-10 years and will make it difficult for you to get loans or credit cards at reasonable interest rates during that period of time.  In other words, you should consider a bankruptcy alternative before committing yourself to such a drastic step.

There are several bankruptcy alternatives that can help you pay off your debts while allowing you to maintain a reasonably comfortable lifestyle.  The first thing you can try to do is negotiate with your creditors.  You can either do this yourself or hire a professional credit counselor to do it for you.  Most of the time, you'll find that your creditors will be more than happy to accept 75 or 50 cents on the dollar for the amount of your debt because they realize it's better than getting nothing at all. 

A second bankruptcy alternative that you should consider is refinancing your home.  When you refinance your home, you're basically getting a new loan to pay off your original one.  Depending on how much equity you've built up, you might be left with enough cash to settle all of your other outstanding debts.  In addition, if your new loan has a lower interest rate than your old one, you'll probably have lower monthly payments, too.  There's no question that refinancing your home is a great bankruptcy alternative, so be sure to check out this option thoroughly. 

Refinancing is wonderful, but that's assuming you own a home.  If you don't, you'll have to continue looking for other bankruptcy alternatives, such as debt consolidation.  There are lots of consumer credit counseling services that can help you with debt consolidation.  Instead of paying your creditors directly, you'll send a single payment to the credit counseling service and they'll divvy up the money to all of the people or organizations you owe.  The credit counseling service might also offer you the chance to take out a personal loan, which doesn't have to be secured by collateral.  Depending on the interest rate, you might consider applying for one.  If you're approved, you'll be able to pay off your high-interest credit card debts and save money that way.

Another sound bankruptcy alternative would be to downscale as much as possible.  This means moving into a smaller house or apartment, taking on roommates, driving a less expensive car, selling off any assets that you can part with, etc.  The more money you can scrape together on your own, the less additional debt you'll have to incur in the future.

As you can see, there are several sound bankruptcy alternatives for you to choose from.  Everybody makes financial missteps from time to time; however, you shouldn't compound your problems by declaring insolvency and blowing off your creditors.  Instead, choose the bankruptcy alternative that sounds the best for your particular situation and start working to repair your credit now.