Options Instead of Bankruptcy
If you find yourself in a precarious financial position with a lot of debt and no apparent way to repay it, you may consider bankruptcy to be an option. While a successfully-filed bankruptcy petition can indeed discharge some or all of your debts, bankruptcy has long-term ramifications for your credit score and your ability to obtain future credit. Since other options exist, you should consider bankruptcy only as a last resort.
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Negotiation
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If you are having trouble making the payments on your outstanding debt, call your creditors and try to negotiate the terms of your contract. If your debt is primarily credit card debt, call your creditors and ask for a lower interest rate. If your circumstances are dire, you can ask for a payment holiday where interest still accrues but you do not have to make a minimum payment for a set amount of time. Ironically, you will probably have more leverage in negotiating with your credit card companies if you have missed a few months' worth of payments. After six months, credit card companies must legally charge-off your debt, which is an accounting entry reflecting the company's belief that your debt is uncollectible. While you will still legally owe the debt, the company would much rather collect what it can from you before this happens. Right before the charge-off of your debt, call and ask what amount you could pay to satisfy the full amount of the debt. Many creditors will negotiate substantial discounts at this point.
Consolidation
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If you have other credit cards or lines of credit available, see what interest rate those creditors charge. If you can consolidate all of your outstanding debt into one credit line with a low interest rate, you may be able to handle making the payments instead of declaring bankruptcy.
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Debt Management Program
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Numerous reputable nonprofit credit counseling services can help you devise a repayment plan for your creditors that avoids bankruptcy. Under this service, known as a debt management program, the counseling agency will negotiate with your creditors to stop or reduce late payment fees and interest hikes in exchange for regular monthly payments.
Budgeting
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If your debt is not overwhelming, you may be able to avoid bankruptcy or debt settlement with a simple readjustment of your monthly budget. Examine areas where you are spending money that are nonessential and that you can cut from your budget, such as extravagant entertainment or shopping expenses. If you can divert enough of your discretionary spending toward debt repayment, you may be able to sidestep bankruptcy.
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