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Alternatives to Bankruptcy

There are several alternatives to filing bankruptcy that any individual in severe debt should consider.

Money Management

The most obvious alternative is to change your money habits. Creating a personal budget and finding areas to reduce expenses are some ways to manage your money. For example, eating out less, eliminating expensive cable and internet plans, and taking public transportation are some easy ways to control spending. (For money budget calculators, see e.g. http://cgi.money.cnn.com/tools/budget101/budget_101.jsp, https://www.mint.com/create-personal-budget-online/)

Negotiate With Creditors

You will find that many creditors may be amenable to negotiating a way to pay down your debt when you are nearing bankruptcy. Creditors realize that they have nothing to gain by playing tough with debtors who may file bankruptcy to discharge their debts. Debtors that have a steady income or sufficient assets may take advantage of this option.

Consolidate Debt

Combining debt is another alternative to bankruptcy.  Consolidating debt into one loan, transferring an outstanding credit card balance to a lower interest credit card, and consolidating with a home equity line are some ways to consolidate debt. However, be careful if you decide to borrow against your home to pay off credit cards since credit card debt is dischargeable in bankruptcy, but you could end up losing your home

Create a Debt Management Plan Through a Credit Counseling Agency

A credit counseling agency can create a debt management plan for the debtor to distribute to the creditors. A credit counseling agency can collect and distribute a monthly payment from the debtor to the creditors until the debt is fully repaid. For a list of agencies in your area, go to the United States Trustee’s website at www.usdoj.gov/ust.

Do Nothing

Sometimes the best course of action for someone in deep debt may be to do nothing. Someone with no wages or property is essentially “judgment proof” since legal action against such an individual would be pointless. Creditors are unlikely to sue such an individual because they will likely have trouble collection the judgment even if they “win” in court. Debt typically comes off your credit record in seven years.

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