Many people consider bankruptcy as a quick-fix solution to all their debt problems. However, this is far from true. Bankruptcy can cause severe damage to your credit record. It can ruin both your career and social life. In other words, it is a decision that one should only take after exhausting all the other options.
Cut Down On Expenses
So what are your options? Maybe you can really pay your way out of debt. If you look at your fiscal situation minutely, you may find that there are expenses that you can do without. Do you currently have cable television and that too with premium channels? You can cut this out because you can live easily without cable television. Do you currently own a landline and a cell phone? How but getting rid of one of these to cut down on your expenses?
By cutting down on your expenses, you will have extra money available to pay off your debt. Meanwhile you can also think about increasing your income by working extra hours or maybe taking up a second job. Or you can use your skills or hobby to generate some extra income. With the help of this extra income, you can avoid bankruptcy.
Selling Your Assets
Maybe you should think about selling some of your assets to pay off your debt. Take an inventory of things that you can sell. Maybe you can sell your recreational cars. Some people move to a smaller house to pay off their debts. This way they avoid bankruptcy and its negative side-effects.
Negotiate With Your Creditors
If you feel that you just need a little breathing space to pay off all your debt, you should consider negotiating with your creditors. Tell them about your financial situation and that you do want to pay the debt off. Request them for a plan to help bring down the monthly payments or to decrease the interest rates or even both. You will be surprised to know that many banks and credit card companies have hardship programs that help consumers facing financial difficulties.
Credit Counselling
If you feel that you need help with your debt, then you should consider going in for consumer credit counselling service. These are professional people who know how to deal with creditors. They will negotiate with your creditors on your behalf for a payment plan with reduced monthly payments.
Your creditors will be more than happy to work with your credit counselor because they know that if you file for bankruptcy, they might not get anything at all. Choose a non-profit agency because it would not be associated with any creditor. They will thus be able to provide you with a solution that is in your best interest.
Personal Proposal
Filing for a personal proposal is another way in which you can avoid bankruptcy. A proposal is basically a contract between a debtor and his/her creditors. You need a trustee to make a proposal to your creditors. Once it has been approved by your creditors, it needs to be approved by the court. A proposal is binding on all the creditors involved. Basically in a proposal, you agree to pay a certain portion of your debt.
Filing for a proposal is a better option than filing for bankruptcy because it would not ruin your credit the way bankruptcy does. Moreover, it would stop all legal actions undertaken or being contemplated by your unsecured creditors.
Judgment Proof
Those who have debts but are in no position to repay because they have small or no income may be considered as judgment proof, also known as collection proof. In other words, if your creditors decide to sue you, they cannot collect anything from you because you have nothing. Under such circumstances, they might simply write off your debts. After seven years, this debt would be erased from the records.
However, you must remember that if your financial condition improves, you would no longer be considered as collection proof.
Give a serious thought to each of these alternatives before you file for bankruptcy. Who knows, maybe you can avoid it and save your credit record.