One option to resolve debt problems is filing for bankruptcy either Chapter 7 or Chapter 13. You may choose to file for bankruptcy as an alternative depending on your circumstances.
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What are the alternatives to filing for bankruptcy?
The following options can help you pay off debts without filing for bankruptcy if you’re struggling with debt.
Consolidate Debt
Combining debt is an alternative to bankruptcy. It is sometimes easier to repay debt if only one payment is required to a creditor. There are many debt consolidation options available:
Use a debt consolidation loan: Debt consolidation combines separate debts into one loan. The debtor still owes the exact same amount, but the monthly payment and interest rate are usually lower than the separate payments to creditors.
Transfer debt to a low interest credit card: Credit card companies often offer low transfer rates for new customers. The debtor will pay lower interest over the repayment term if the transfer terms keep interest rates low until full repayment. These benefits are similar to a low interest loan.
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Consolidate debt with a home equity loan: A home equity loan is an option for consolidating debt. This allows debtors to combine their debt into a low-interest, tax-deductible loan. You should be careful when taking out a loan against real property. The lender could have the right to repossess the property if the debtor defaults on the equity lines. In a strong realty market, this is an option that can be very effective.
Collaborate with Creditors to Create a Repayment Program
Ask creditors to agree on a repayment plan as an alternative to bankruptcy. When bankruptcy is the only option, many creditors will agree. Some creditors will agree to these options if a debtor files for bankruptcy.
- Lower monthly payments
- Plan a long-term payment plan
- Reduce the interest rate, or the debt
This is a better option than having the debtor discharged under Chapter 7 bankruptcy or put in a court-approved repayment program in Chapter 13.
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Make a debt management plan
A credit counseling agency can help you to manage your debts if it is not easy to negotiate with creditors. Based on your income and debts, the agency will devise a repayment plan.
You will pay one monthly payment to the agency if your creditors agree. The agency will pay a fee and distribute the money to your creditors until you have paid off the entire debt. However, there may be a conflict of interest as many debt counseling agencies get their money from creditors.
There are some drawbacks to a debt management plan. Any creditor may terminate a debt management plan if you fail to make a payment. You are protected from creditors’ collection actions if you fail to make a Chapter 13 payment.
Chapter 13 usually allows you to pay only a portion of debt owed to unsecured creditors. However, you are required to repay all debts owed under a debt management program. However, bankruptcy filings can have a negative impact on your credit score for as long as ten years. Get information about your bankruptcy options. Talk to an attorney today
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Are you worried about bankruptcy filings? Are you unsure if bankruptcy is right for you? You may be wondering what your next steps are. However, it is important to start preparing a plan, with the help of a legal professional. Get in touch with a local bankruptcy attorney.