Alternatives to Filing Bankruptcy and Getting Your Debt Under Control
Last Updated: March 4, 2014
We get a lot of questions on our forums about bankruptcy and many are looking for alternatives to filing bankruptcy. While there is no easy answer and everyone has a unique situation, we thought we would put together some of best recommendations for getting control of your debt so you can avoid filing for CH 7 or CH 13 bankruptcy. Be warned, there is no easy way to get out of debt. Some hard choices are in front of you but there are always alternatives to the long-lasting effects of filing bankruptcy.
Below are some basic strategies for getting your debt back under control. We've listed them in order of best to worst in terms of the effect they will have on your credit.
Reduce Your Expenses
If your credit isn't in terrible shape, can you reduce your other expenses while you pay the debt off? Perhaps some fairly painless changes to your lifestyle can bring your bills in line with your income. If not, some hard choices may be required. Some examples:
- Do you really need things like cable T.V.? Get rid of the extraneous expenses.
- Ask a relative for a loan.
- Can you do without the second car? Sell it.
- Pull equity out of your home by refinancing.
- Apply for a non-secured signature loan.
- Sell your home, pay off your debts with the proceeds, and rent.
- Cash out your 401K or any other retirement benefits.
- Sell those family heirlooms/jewelry/guns that are too valuable to use anyway.
Save More Money
Sometimes the best way out of your financial situation, especially if your problem is credit card debt, is to just not pay your bills, and save the money you would have put towards minimum payments into a savings account.
Settle Your Debts with Your Creditors
If you are willing to negotiate with your creditors (meaning long conversations on phones, letter writing, dealing with less-than-cooperative customer service people) you can try and settle your debts yourself for less than you owe, sometimes without damaging your credit rating.
Get Help From a Credit Counselor
If your credit is already hosed and the suggestions above won't make a dent in your debt, I'd suggest going through Consumer Credit Counseling Services (CCCS). Check your Yellow Pages for the local office. CCCS will give you a plan for paying off your debts as if you were in a Chapter 13 bankruptcy without ever filing a bankruptcy.
File Chapter 13 Bankruptcy
If Consumer Credit Counseling Services (or CCCS) won't take you, you may want to consider bankruptcy. Doing a Chapter 13 bankruptcy takes longer, but your credit is in a little better standing than it will be if you file Chapter 7. You have up to 5 years to pay off your debts when you file Chapter 13 bankruptcy. Another plus is the bankruptcy drops off 7 years from the date you FILE, not finish. Therefore, you will have the bankruptcy for a maximum of 7 years.
File Chapter 7 Bankruptcy if All Else Fails
If you are so far in debt that you will never be able to repay it, the best solution may be a Chapter 7 bankruptcy. A Chapter 7 bankruptcy is the least desirable credit-wise but you are typically out of bankruptcy in 6 months and you don't have to repay any debt. One disadvantage is that this shows on your credit report for 10 years from the date of filing your bankruptcy. Another disadvantage is that creditors are starting to tighten their credit requirements. You may have a tough time getting financing in the future.
There is no magic solution for getting out of debt. Don't believe anyone who tells you otherwise.