Know Your Bankruptcy Alternatives

December 18, 2009 by  Filed under: Bankruptcy 

If you don’t want to go through the trauma of a bankrupt, you can explore bankruptcy alternatives. Surely, in some cases, bankruptcy is the only choice you have. Sometimes, it can even be better to shed your struggles and start afresh. However, it is also beneficial to learn in detail about bankruptcy alternatives.

Debt Consolidation

Debt consolidation is one of the easiest of bankruptcy alternatives. It is, essentially, taking a big loan at low rate to pay off all of your loans. Pending credit card payments and other unsecured loans can be consolidated. The consolidators or lenders will have arrangements with credit card companies, debt collection centers, and the like. They take over all the loans. The interest rates can be much lower. In other words, you can pay the same amount every month and reduce more of your debt. More money will be applied to the principal. The benefits are fewer monthly payments to make and freedom from harassing calls by bill collectors. The lender may charge you a monthly fee for consolidating the loans.

Debt Negotiation

This bankruptcy alternative is for people who can’t pay off consolidated loan. The outstanding balance is too large to be repaid. After the negotiations, the amount payable to the creditors is reduced to a minimum. The negotiator also can charge you a fee.

Individuals can also negotiate with creditors. Creditors usually agree to repayment plans. This is because the creditors have the risk of not getting any money if the debtor goes bankrupt.

Take No Action

This is also an option used by debtors who don’t have any income or property. Even if the creditors take legal action, the debtor cannot be questioned. Creditors don’t take legal action against debtors who have no assets or income. Unemployed or retired persons with no income or assets can use this ‘no action’ policy. The debts are removed from your credit history after seven years. However, if you have assets that can be seized, this option is not the best.

Personal Finance Management

Debtors take stock of their debts and create a repayment budget. They can also negotiate with the creditors for more favorable rates and longer repayment periods. The debtors need to control daily and monthly expenses. Expenses are cut by taking actions like reducing instances of eating out, disconnecting premium cables, switching to a basic home phone plan and not driving a car everyday. Reducing the monthly expenses can make debt-reduction a faster process.

The best alternative to bankruptcy is to be prudent with your personal finance while you are earning a good income. The term ‘prevention is better than cure’ stays true for personal finance too. It is always easy to spend too much on eating out, cars, and house. But you can save your sanity by taking stock of your income and spending only within your income limits.

Some conditions like a medical emergency, job loss, or divorce can cause imbalances in your financial life. Prudent budgeting and personal financial planning is the best of all bankruptcy alternatives.

Securing a debt consolidation loan can be a viable alternative to filing for bankruptcy. Additionally, debt negotiation and financial planning also count as important means of avoiding bankruptcy.

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