Bankruptcy can be devastating
both economically and emotionally. Though most bankruptcies
are granted, it isn't meant to be an easy way out of your
debt. Extensive damage to your credit and long-term economic
issues from bankruptcy will cause many problems in the years to come and it is far
better to explore any and all other alternatives before making the
decision to file for personal bankruptcy.
Renegotiate secured loans
instead of bankruptcy
Bankruptcy does not get
rid of all your debt. Secured loans are generally for
items such as cars and/or your house. These secured loans are
generally the largest debts that most people have, yet filing
bankruptcy will not reduce or terminate these debts.
If your debt hasn't completely
caught up with you and ruined your credit already, you may be able
to renegotiate these loans with the creditors or take the loan
elsewhere.
For instance, if you have a home loan that is
several years old, you may be able to reduce your interest rate
significantly. Depending on your principal balance and
current terms, you may see your payment go down several hundred
dollars per month. That's money in your pocket that you can use
to pay other debts.
If you only have a few years left
on a house mortgage, you may also be able to extend that loan over
a longer period and reduce your payments even more.
Debt consolidation
Most people have multiple
payments that they must make every month. High interest
credit card bills, car loans, house mortgage, doctor/hospital
bills, etc. can add up to some very serious payments every month.
If you have equity in some real
estate, especially your home, you can often get rid of these debts
by taking on a first or second mortgage and use that money to pay
off your other debts. In most cases, you should be able to
significantly reduce your monthly payments and perhaps stave off
bankruptcy proceedings.
Be sure to run the numbers
first. There isn't any point in consolidating debts if it
isn't going to make a significant difference in your ability to
pay. Consolidating unsecured debt under a home mortgage will
make the entire debt secured and bankruptcy wouldn't do you a bit
of good.
Debt deferment
Debt deferment means to make
arrangements to pay certain bills at a later time. Rather
than lose a good customer as well as the debt owed, some merchants
may be willing to let your debt sit and collect interest while you
pay your other bills. Few secured loan holders will go along
with this because they generally have nothing to gain.
However, other merchants may be more willing to do so.
Renegotiation of unsecured
loans
Unsecured loans are far more at
risk and there may be more wiggle room here. Some merchants
are willing to reduce or even eliminate any interest or carrying
charges in order to let you pay off your entire debt load.
If they think their other option is to lose it all through
bankruptcy, you can get some real deals here.
In any such situation, you should
however, expect that your credit will be immediately
terminated. Merchants that aren't being paid now are seldom
willing to extend even more credit.
Interest debt reduction
When people get into a credit
mess, it's often due to extensive interest that has accrued on the
original balances. This interest is however, often carried
separately by creditors and there may be room to negotiate part or
all of this credit away.
Creditors may not be willing to
negotiate the principal balance but are generally more amenable to
working with you on the accrued interest because it isn't
reflected in the books the same way.
Professional debt negotiation
Doing much of the above sounds
like it can be a great deal of work. It is. If you've
never been through it before, you may be uncertain as to whether
you can handle the emotional aspects of dealing with these
creditors or fear that they will use the opportunity to harass or
intimidate you. Sometimes they will.
Debt negotiation companies can do
much of the work for you by developing, and then taking your case
to the creditors. Since your negotiation company has no
personal involvement, discussions remain purely about resolving
the business relationship, leaving both parties more amenable to
working out a solution.
Volunteer organizations
Some communities have volunteer
organizations that can do some of this negotiation for you. This may be the way
to go if your debts are relatively small and few. They may
have limitation as to the extent of their involvement but often go
to work for seniors in negotiating payment plans with telephone
and utility companies.
Debt reduction attorneys
In cases where your debt
load or asset level is high and/or varied, you should probably seek professional legal help from an attorney that
specializes in debt reduction.
Debt reduction attorneys have a
wide variety of skills and can often do a better job of working
with some creditors. When your attorney calls on your
behalf, it is generally received as a strong indicator that the
merchant should take such discussions seriously.
A debt reduction attorney will
also take a look at any contracts you may have. Since most
contracts include a lot of legalese, they are often hard to
interpret. Your attorney will review these contracts to make
sure that you are taking full advantage of any provisions within
the contract and make sure that the contract provisions are
legal. Illegal contract provisions can be repudiated.
A good debt reduction attorney
will also become very familiar with your case. This can come
in handy if other actions must be taken and therefore reduce some
redundancies.
