Scissors cutting Credit Card.

To File or Not to File?  That Is the Question…

If you are considering filing for bankruptcy, explore all of your other options first.  Bankruptcy is an appropriate solution for some people, but it should be your last resort.  Let’s walk through some common alternatives to filing so you leave no stone unturned.

Credit Counseling / Debt Counseling - There are some legitimate companies, including GreenPath, that offer free debt counseling to consumers who want to get out of debt.  If you have significant credit card debt, you may be a candidate for is a debt management plan.  With a debt management plan, you make regular payments to the credit counseling company, and they make payments on your behalf to the creditors.  In addition to the convenience that this option provides, a debt management plan typically lowers credit card interest rates, waives late and over limit fees and stops collection activity.  It can be a great tool for some people to help them save a lot of money and get out of debt faster.

Debt Settlement - If your debt is severely delinquent, you may find success in negotiating with creditors to pay less than what you owe.  The obvious advantage to this would be the cash savings.  The disadvantage would be the fact that your credit report will show that the debt was paid for less than the agreed amount, which would likely lower your credit score.  Additionally, you’d want to consult a tax professional because you would likely pay taxes on the forgiven amount as revenue.  If you are interested in this option, you could try your hand at communicating directly with the creditors.  Debt settlement companies often charge high fees and offer no guarantees.

Liquidating Assets - Do you have a car that you could sell for some quick cash?  How about stocks or bonds that have significant value?  Selling or liquidating an asset allows you to pay off your debts quickly and easily.  The toughest part of this option is breaking the emotional tie that you may have to your possessions.  However, your sorrow may turn to joy when you realize how good it feels to be debt free!

Debt Consolidation Loan - Some people opt to eliminate the hassle of paying several creditors by getting a debt consolidation loan that covers all of their debts.  If you have equity in your home, you could take out a home equity loan to repay unsecured creditors.  Just beware that if you don’t pay your home equity loan, you could find yourself evicted since a home equity loan is secured by your house. 

Lifestyle Changes - With any option you choose --- including bankruptcy --- you’re going to have to make some lifestyle changes.  Remember that saying, “If you keep doing what you’ve always done, you’ll keep getting what you always got.”  Lifestyle changes often require making small sacrifices now to avoid big problems later.  For example, selling your motorcycle may give you enough cash to pay your mortgage and avoid foreclosure.  Keeping a tighter rein on spending can also help you avoid bankruptcy.  Start by tracking your expenses and creating a budget.  You may find that you have more disposable income than you realized.

Do Nothing - This may not seem like much of an option, but hear me out.  I am certainly not saying it’s a good idea to walk away from your debt.  However, some people with limited assets and no financial means to pay their debts are deemed to be “judgment proof.”  This means that anyone who sues you and obtains a court judgment won't be able to collect from you simply because you have no assets that they can legally take.  A person is typically not thrown in jail for failing to pay debts, except in legal situations (e.g., failing to pay child support).   Nor can a creditor take away essentials, such as basic clothing, ordinary household furnishings, personal effects, food, Social Security, unemployment, or public assistance benefits.  You should definitely seek legal counsel if you are wondering if you’re judgment proof.

Only you can decide what course of action you should take.  Explore your options and consult a professional when possible.  While bankruptcy may be a good choice for some people, it certainly isn’t the only choice for most.

 

Disclaimer: This article is not to be used for legal advice.  Speak with an attorney if you have specific questions about your situation.

Bankruptcy