Bankruptcy is the right choice for some folks, while in other situations it might not offer the most favorable outcome.
There are other options for debt relief. Below are five different ways an individual might use to avoid filing for bankruptcy.
- Settle or negotiate debts. Filing for Chapter 7 bankruptcy releases the filer from debt. But filing for Chapter 7 is risky because the filer might have to relinquish all of their assets and property. Debt consolidation could be the solution. Debt consolidation is an agreement made with lenders to repay debts without having to liquidate assets. To achieve this, the debtor must consolidate debts into one loan and pay for it monthly with a low-interest rate. Debtors can also settle their debt, which is similar to debt consolidation. This means the debtor negotiates a deal with creditors. If lenders believe they will be paid back, they will generally arrange a reduced payment plan.
- Sell property. In most Chapter 7 cases, property is liquidated. But this can be avoided by selling all or a portion of the property. If the debtor has a large sum of debt, see what the debtor can afford to live without. Maybe an extra car that can be sold, or the same for valuable jewelry. There may be a number of items in one's home with enough value to pay for a portion of the debt. Consult with an appraiser to see how much money any collectible items are worth.
- Borrow money from family or friends. Sometimes this idea is not suggested because of the potential strain this could put on the debtor's personal relationships. But if the debtor is close to bankruptcy, a friend or family member will hopefully understand and be willing to help. Borrow money from a trusted person. Also be sure their financial generosity will help remove your debt and not add to debt in the long run. Formulate a payment plan.
- Refinance. Debtors who arrange a new mortgage payment may be able to save the money from their monthly house payment and use it to pay for debt. This plan is worth it if the debtor can avoid bankruptcy or foreclosure.
- Sacrifices. Sometimes the best way to save money is to refinance your budget and eliminate unnecessary expenses. Go out to eat less, maybe cancel a cable bill, or a gym membership. Taking away these little expenses can really add up, allowing the individual to pay off more debt.
All of these methods can help a debtor from going bankrupt. Making sacrifices is hard, but if the sacrifices prevent you from going bankrupt, they are worth it. If you need more help you should seek a credit counselor or a bankruptcy attorney. To learn the main reason to file bankruptcy, watch Raleigh bankruptcy attorney Brent Adams' video above.