Bankruptcy – The Last Resort
Bankruptcy is a major decision and usually your last resort when facing a financial situation for which there is no other solution. It’s a legal recourse designed to help you and the financial system when all other options have failed. Because of the long-term consequences of declaring bankruptcy, including bad or no credit for a number of years, it is never a decision to be taken lightly. In most cases, you can’t even qualify for bankruptcy unless you absolutely need it. Understanding and pursuing the various bankruptcy alternatives is one of the first steps you should take when considering this life-changing move.
Note: Before reading the options below, be aware that depending on your circumstances, you can choose to take no action. If you owe money, but you have little income and zero assets, you might be considered “judgment proof,” which means you that you have nothing that creditors can take. Remember though, as long as debt is still there, it’s not simply going to go away. If circumstances change and your financial condition improves, creditors will come after you.
Option 1: Credit Repair
Repairing your credit can help with a lot of problems financially. It can help put an end to the vicious cycle of getting in debt because of bad interest rates. Lexington Law offers a FREE credit consultation. Before filing for bankruptcy, talk with a paralegal at 800-220-0084 to see how they can help you.
Option 2: Credit Counseling and Money Management Solutions
Because of the serious legal and financial consequences of bankruptcy, most courts require people to show that they have obtained credit counseling with an approved agency before petitioning for bankruptcy is allowed. This credit counseling should be free, and the agency must be approved. Some organizations will confidentially work with you to find solutions to repaying your debt, usually through strict personal budgeting and money management. Like bankruptcy itself, you will have to make sacrifices, but you might avoid the legal proceedings.
Money-management solutions can also be investigated online. Some people do it themselves, but if you’re seriously considering bankruptcy, get the free advice. Credit counselors will analyze your expenses for you and give you their expert advice. They’ll also help you prepare a budget that will work. They can even negotiate repayment plans with creditors by means of arrangements with major lenders that allow them to negotiate deals you wouldn’t be able to get on your own.
Option 3: Talk To A Bankruptcy Lawyer
Like credit counseling, a bankruptcy lawyer can give you great advice. But before you meet with one, try to educate yourself as much as possible. Learn as much as you can about credit counseling, personal budgeting, and bankruptcy procedure to avoid following a path that might not be ideal. Make it understood on your first consultation that you are only exploring your options and that you’re not yet ready to retain a lawyer. Remember that you’re thinking about bankruptcy because you can’t pay for things, so you shouldn’t be paying for advice either. Seek free advice wherever possible before paying for it. Granted, you may have to pay an hourly rate to speak with a lawyer, but use the limited time wisely to ask good questions.
Option 4: Investigate the Debt Relief Industry
Once you have researched your personal situation and gotten as much free advice as possible, it might be useful to look into the debt relief industry, which provide a number of services for a fee. You should always approach this industry with extreme caution because their goal is to make money, and some companies are less than scrupulous. When considering this route, shop carefully.
Essentially, what the debt relief industry can do is similar to what credit counseling can do. In many cases it’s the same – they negotiate debt with creditors. They can help restructure your debts out of court, which is called a “workout” and might be less expensive than bankruptcy. They can also consolidate debts, which means you’ll replace many payments with one monthly payment that will be lower than your previous combined payments, but might take longer to pay off.
The debt relief industry can also arrive at debt settlements, which is only an alternative if you can liquidate assets to pay for those settlements in lump sums. For most consumers, this option is considered highly risky.
Option 5: Proceed With Caution
With all of these options, there is the danger of receiving false or inaccurate information, of being tricked into spending money, and of buying programs that will only hurt you more. Always be wary, especially whenever someone wants to sell you something. Don’t trust everything you read, even if a website states their interests are educational or consumer-advocacy based.
If an agency or company won’t provide free information about itself and its services without you providing your financial details, go elsewhere. Also, be sure to check with your state Attorney General, local consumer protection agency, and Better Business Bureau to find out more about agencies and companies. A state-by-state list of government-approved counseling organizations can be found at www.usdoj.gov/ust.
Again, always proceed with caution and make sure you trust every person or organization you talk to. This isn’t easy, so talk to your local government officials and courts and rely on federal resources like www.justice.gov and www.ftc.gov as guides to who you should and should not trust.