4 Practical Bankruptcy Alternatives Posted by Stranger on 4:43 AM Digg it Bookmark it Stumble it Email to friend

Bankruptcy may be the only option for many people, especially in these troubled times. But any way you look at it,bankruptcy has some heavy consequences, and it’s still best to save it as a last resort. Before deciding to file for bankruptcy, whether it’s Chapter 7, Chapter 11 or Chapter 13, here are some alternatives you may want to consider.

The No-Action Approach

Usually, when you simply ignore that pile of debt, your creditors will eventually obtain a judgment against you. This means the court can order
you to give up some of your assets or wages to pay your creditors, much like you would in a Chapter 7 or Chapter 13 bankruptcy. However, if you
have nothing that they can seize—and don’t expect to in the near future—the judgment wouldn’t mean anything. In most states, the debt
simply gets erased from your record after seven years.

Self-reorganization

Simply taking time to reorganize your expenses can give you enough cash flow to pay off your debt and avoid any legal action. Consider cutting
down spending on entertainment, travel, and other non-essentials. A financial adviser or bankruptcy consultant can help you go through your
accounts and see where you can cut corners. For companies, this is similar to a Chapter 11 bankruptcy, except that you take the reorganization into
your own hands rather than letting the trustee or creditors take over.

Personal Negotiation

Creditors still risk losing a substantial amount when a debtor files for bankruptcy. That’s why most of them are willing to accept a settlement in
which they receive part of the money owed—in the worst of cases, they walk away with at least a partial payment. Negotiation can be a good
alternative to Chapter 7 or Chapter 13 bankruptcy if you have enough income or assets to cover a good part of the debt. It can also give you
some time to work out your finances before taking further action.

Debt Consolidation

In a debt consolidation, you take out a low-interest loan from one lender to pay off high-interest debts like credit cards. This allows you to pay
off several debts in a single monthly payment, and often take advantage of a low interest rate so that more of the money goes into paying the
principal. Debt consolidation as a bankruptcy alternative usually requires a security, such as a car, since a debtor in bankruptcy doesn’t have
enough credit to get the required low rate.