You May Not Have To Go Bankrupt

Filing for bankruptcy is not a decision that should be taken lightly. When debt amasses, it is natural to feel backed against a wall. But remember that declaring Chapter 7, Chapter 11 or Chapter 13 bankruptcy means serious implications for your immediate and long-term financial future. In addition to suffering damage to your credit score, you may be unable to receive property loans or leases and may have to liquidate certain assets.

Sometimes, despite the drawbacks, declaring bankruptcy is your most sensible option for dealing with debt — in fact, more than 1.4 million Americans filed for some type of bankruptcy in 2011. You should treat it as a last resort. Indeed, there are several alternatives to filing for bankruptcy in order to settle debt, including the following:

  • Negotiate with creditors — Whether you are seeking a mortgage loan modification or another type of debt restructuring, creditors often entertain requests to lower your minimum payments, especially if you explain that you are trying to avoid bankruptcy. They would rather you pay back your debt over a longer period of time than file Chapter 7 and not pay it back at all.
  • Enroll in credit counseling — If you enroll in a debt management program (DMP), a credit counselor can often help you achieve lower interest rates, fewer fees and/or more affordable payments. Additionally, you may be able to halt or minimize collection calls.
  • Cut spending — If you can cut your own spending significantly through budgeting and eliminating as many non-essential expenses as possible, you may find your monthly minimum payments more affordable.