3 Alternatives to Filing Bankruptcy

Filing bankruptcy is a decision that will impact your personal and financial life for many years. It is a legal system put in place to protect you as a last resort. If you qualify for total liquidation and debt forgiveness, it is be best to file for bankruptcy in order to receive the protection of the law.

However, if you have been advised that you may be able to resolve the debt in other ways, pursuing these other means will benefit you in the long run. It will take a long time to resolve the issue, whether you use the court or pursue the option yourself, consider your steps carefully and move slowly to properly handle all details. 

Debt Settlement 

Settling debts is a form of loan modification where the borrower pays of the entire loan in one lump sum. That lump sum is less than the amount remaining on the loan; however, banks and lenders may be willing to agree to this option because they are guaranteed to get the money quickly.

Settlement allows them to recoup some of their losses and move forward, and they can simply close your file. You can work with a settlement company to achieve this step. The settlement company will often have a good relationship with the lenders and can get you a nice settlement. They may also be able to lend you the funds to make the lump sum payment if you do not have the cash, and then you can start fresh by paying off the loan to them.

Debt Consolidation

Most individuals considering bankruptcy have more than one debt they are struggling to pay off. If this is the case, a debt consolidation loan may be a better option than settlement alone. Debt consolidation is similar to settlement because you will negotiate will each of your lenders for a lump sum payment. You will then take a new loan from a credit counseling agency or other lender.

This loan will be used to pay off each of the existing loans you have. The goal should always be to get a new loan at a lower interest rate than your current loans. In this way, consolidation is truly settlement and refinancing all at once. You move forward making only one monthly payment; this is easier for many people to manage.

Personal Asset Liquidation

The court will take you through a process of asset liquidation when you declare bankruptcy. A judge will determine which of your assets you must sell in order to get the cash to pay off your loans. The judge will also determine which loans should be paid off first based on their seniority. If you would like more control of this process, you can move through the liquidation steps yourself. This will allow you to protect assets, such as family heirlooms, you do not want the court to seize.

You can begin selling your assets and paying off your debtors, usually through a settlement-like process. Involving the courts will give you legal protection, but it will also take the power to make these decisions out of your hands.

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