Alternatives

Bankruptcy is a tough path to tread. A consumer who declares himself bankrupt could be virtually free and debt and could obtain protection from creditor harassment under bankruptcy law but there always are drawbacks to such type of an arrangement. There are many aspects other than financial matters that the filer will have to deal with, such as the stigma of being required to declare bankruptcy for certain financial transactions. The intense social stigma is a main disadvantage of bankruptcy.

Bankruptcy declaration is made as public as possible; the names of filers are published in local and national dailies. Chapter 13 bankruptcy will stay on a consumer’s credit report for 10 years. Consumers will not be allowed by the bankruptcy trustee to take out new loans, and even if they are, it will be extremely difficult for them to do this because creditors will consider these potential debtors as too much of a risk to entertain. Businesses owned by the filer will be closed and employees terminated. Efforts towards employment will also be prejudiced; social and legal judgments require other options besides bankruptcy. Many others cannot be fully mentioned, but the idea is, with such hard-hitting disadvantages, alternatives to bankruptcy have to be fully explored first.

The first alternative is debt elimination on your own. This is a bankruptcy option for those who can’t afford a lawyer or debt management service. This personal bankruptcy alternative involves budgeting skills and the will-power to strictly adhere to the set budget. The budget will include monthly expenditures on basic commodities plus mortgage and car payments. The target is pay off debt in three years including prevailing interest rates. Reduction in expenditures and a lifestyle shift may be necessary in all debtor alternatives to bankruptcy.

Another bankruptcy alternative is debt elimination with external help. An alternative to bankruptcy is credit counseling. Consumers should consult with credit counseling services if they cannot pay current debts in three years. These agencies could negotiate with creditors for a payment plan which debtors could afford, sometimes offering zero interest on current debt. Payment duration may also be extended. Mortgage options to avoid bankruptcy include debt consolidation plans.

Another personal bankruptcy option is called the debt workout or debt settlement. This bankruptcy alternative is an assertive approach to debt reduction. This is negotiating with creditors to pay a lower amount than what a debtor originally owed. Another plan is to extend the duration of the loan without adding on any more interest to outstanding loan amount. Some creditors may be open such an arrangement; if the debtor declares bankruptcy they will get nothing.