Bankruptcy Alternatives

You may be considering protection under chapter 7 or chapter 13 of the United States Bankruptcy Code but have you considered the alternatives to bankruptcy?  Depending on the depth of your financial bind, there may be a viable alternative to filing for bankruptcy.  The first and most commonly considered alternative to filing for bankruptcy is non-profit credit counseling.

You may ask what credit counseling is, it’s really quite simple, you work one-on-one with a credit counselor to pay off all of your bills with a single monthly payment that is distributed among your creditors.  A non-profit credit counseling organization usually has a working relationship with most of the nation’s creditors and can work to reduce or even stop your interest rate during the repayment period.  When you meet with the credit counselor you will have a plan laid out from the beginning that shows your monthly payment, how it is disbursed among the creditors, and the amount of time you will be in the program.  If you complete the program successfully at the culmination of the counseling period you will be debt-free.  There are some negative aspects to credit counseling such as the fact that you will usually have to close any of your credit card accounts; it likely stays on your credit report for an extended period of time, and others.  It is imperative that you completely research the pros and cons of a non-profit credit counseling service.

Another alternative to filing for bankruptcy is to secure a debt-consolidation loan.  If you are a homeowner this usually comes in the form of a home equity loan or a home equity line of credit.  The financial institution will determine your creditworthiness and ability to repay the loan in determining approval.  If you are approved the financial institution will pay off the debt that you have listed and then you only have one payment to make.  As with non-profit credit counseling there are also some downsides that you will want to research thoroughly.  You will be taking unsecured debt and making it secured debt, placing your house up as collateral.  You will also be extended the repayment period as most home equity loans are for a period of ten years, fifteen years, or even longer.

Not an ideal option, but another alternative is transferring all of your unsecured debt onto one credit card with a balance transfer option.  Depending on the amount of your debt, the line of credit you have available on a card and the balance transfer options this may be ideal for you.  Many credit card companies are offering a lifetime fixed low balance on balance transfer offers.  However this option usually does not reduce your monthly debt burden but it can lower your overall interest rate plus it gives you an instant snapshot of your debt as it’s all in one place.