What Are the Alternatives to Filing Bankruptcy?
Filing bankruptcy is a serious decision that can have many legal consequences. A bankruptcy stays on your credit report for 10 years after you file, making it potentially difficult to get a loan or credit. Furthermore, you are only permitted to file bankruptcy every seven years, so filing bankruptcy can preclude you from getting debt help for a period of time after you file. Before you file bankruptcy, you may want to consider your alternatives in order to make sure bankruptcy is really your only option.
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Negotiate with Creditors
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Your creditors may be eager to work with you if they believe you are considering bankruptcy since they may receive no payment on the debt at all if you qualify for Chapter 7. See if you can speak with them about a payment plan--which you pay over time--or about reducing the amount you owe. You can either negotiate with them yourself or get help from a not-for-profit credit counseling agency experienced in helping consumers to create payment plans.
Consolidate Debt
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If you are having trouble making payments on multiple debts, you may want to consider debt consolidation to roll all of your debts into one loan. This can lower your monthly payment by stretching out the amount of time to pay back the loan and perhaps by moving your debt to a lower interest rate. You can consolidate through a personal loan or, if you are a home owner, by taking out a second mortgage if you have equity in your home. This option is generally available only to those who still have acceptable credit.
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Do Nothing
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If you don't have many assets and have a low income, you may be what is considered "judgment proof." This means creditors usually won't sue you since there is nothing they can take. If you opt to do nothing, you should make yourself aware of the Fair Debt Collection Practices laws which limit the types of activities debt collectors can use to attempt to collect debt. Since creditors will try to contact you to collect, knowing these rules--such as limitations on when they can call--can limit the amount of hassle you experience. After seven years, the statute of limitations ends on a debt, and the creditor can no longer collect, so eventually the creditors will have to stop calling entirely.
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References
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