Three Alternatives to Filing for Bankruptcy (Which May, or May Not, Be Beneficial)

When you can’t pay off your debt, bankruptcy is generally going to be your best option. Chapter 7 bankruptcy, for example, dissolves most, if not all, of your debt and gives you a clean slate. In some situations, however, bankruptcy is not the best option. In these cases, there are alternatives to filing for bankruptcy. It’s important to be wary of the fact that you will be taxed on the debt which the creditors forgive, so you will still have to pay a percentage of the forgiven debt when taxes are due. Bankruptcy, in contrast, does not implicate taxes—so just another consideration when determining what is right for you.

Alternatives to Filing for Bankruptcy

  • Debt Settlement– Many credit card companies and other lenders will allow you to settle your outstanding debt at a reduced amount, if you can pay the amount in full or sign a repayment plan. Having an attorney negotiate for you greatly increases the chance that debt settlement will be successful in reducing the amount owed.
  • Debt Counseling – Debt counseling services can help you to negotiate a payment plan. In this plan, you’ll make regular payments to a company, and they will make payments on your behalf to your creditors. However, there are legitimate companies in this niche and there are fraudulent ones. Always research debt counseling services before agreeing to anything: check with the Better Business Bureau and Secretary of State’s office to see if the company has a bad reputation. Some debt counseling companies have gotten in big trouble for taking advantage of consumers.
  • Debt Consolidation Loans – Debt consolidation loans allows you to take out a new loan and consolidate all others to streamline and simplify. This is usually done with a home equity loan paid monthly. The risk here is that if you miss payments on your loan, the bank can foreclosure on the house, as the money borrowed was based on the equity of your home. Therefore, in many cases, it would not make sense as you would be turning unsecured debt (which would be dischargeable in bankruptcy) into secured debt (where you could lose your home.)

In some situations, these alternatives may be the best path for you. However, each has their own unique risks and the potential to make a difficult situation even worse. If you are scared of filing bankruptcy simply because of the stigma, or fear of the court system, or fear of never getting your credit score back, that is normal, but not the case. Depending on the debts and many other factors, bankruptcy alternatives will only compound debt, while bankruptcy itself gets rid of it.

Garland & Mason, LLC is a New Jersey bankruptcy law firm with professionals eager to help you find the best route to financial freedom. We offer free consultations to people thinking about bankruptcy or bankruptcy alternatives. Find out your options before agreeing to anything!



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