Considering Bankruptcy To Pay Off Your Debt? Here Are Some Other Options

by Khaleef Crumbley on May 2, 2011

in Debt Management

Debt And Bankruptcy

The following is a sponsored post on behalf of Debt Advisory Line.

The topics of debt and bankruptcy are often highly debated issues, with “experts” on both ends of the spectrum. Some will tell you that if you ever have a small amount of trouble paying off debt, then bankruptcy is your answer! On the other hand, there are some who say that bankruptcy is equivalent to theft and should never be allowed.

As with most things, the answer lies somewhere in between. However, there are plenty of things that one can do before choosing to file for bankruptcy…

Cut Out All Unnecessary Expenses

If you are contemplating bankruptcy, the first thing that you need to do is evaluate your expenses. I have talked to many people over the years who are thinking about filing for bankruptcy, while at the same time enjoying many of the luxuries of life.

If you are in such a desperate situation that you are willing to turn your back on the agreements that you have made in the past, then you should first be willing to strip all of the extras out of your life.

To have a $200/month cable bill, $350/month dining out, paying tons of money for your kids to learn every instrument and sport known to man, and new(ish) cars for everyone in the household, and then claim to be too broke to make minimum payments is a joke!

Cut your budget down to the bare essentials and then attack your debt with everything that you have. This method takes sacrifice, but it will also help you to see what is really important in your life.

Sell Your Assets

If you are in a situation where your debts are growing, and it seems like you have no way out, take a financial inventory. When you want to know how to pay off debt fast, you need to look at all avenues!

Check to see if there are any accounts which you can liquidate – you may want to include your emergency fund in that analysis as well. Also, if you own property or other things of value, you may consider selling them in order to pay off a huge chunk of debt at one time.

It may be hard to sell your home or other treasured possessions, but this may provide the shot in the arm that your debt repayment plan desperately needs. Of course, if your asset is serving as collateral for a loan, you have to see how much you will get after paying off this obligation.

Earn More Money

This is another weapon in your debt repayment arsenal, which is often overlooked. You can first try to earn more money on your current job. Ask for a raise, or try to work overtime. If those options don’t work, then it may be time to search for a higher paying job!

Also, try to use your skills, hobbies, and passions to make money. You can sell the things that you design (I know several people who make good money by designing and selling jewelry), give lessons, or even start a website/blog devoted to your passions!

Talk to Your Creditors

In many cases your creditors would rather get some of the money that you owe them, rather than nothing! Therefore, they are usually willing to work out an agreement with you in order to get your debt paid. This normally happens in one of two ways.

Debt Settlement

This is an option where your creditors agree to accept a reduced amount – this can sometimes be 50% or less of the original amount due. If there is no chance that, given your current financial situation, that you can pay off the full amount that is due, this may be a viable option for both parties, then debt and bankruptcy will be a thing of the past.

Debt Advisory Line - Debt And Bankruptcy

Hardship Program

Many creditors have some sort of “hardship program”, which they offer to consumers who are facing financial difficulties. If, based on your overall financial situation, you can pay off your debt – but you just need a temporary break – your creditor may choose to lower your minimum payments and/or your interest rate for a certain amount of time.

For installment loans, sometimes the bank will take a few of the payments that are currently due (or due over the next few months), and add them to the end of the loan period. If you are behind on your payments at the time, this will allow you to be current in their system. Sometimes, they will actually structure these payments so that you are given a couple of months of breathing room.

These temporary hardship programs – if offered by each creditor – may be enough to allow you to take control of your finances and avoid bankruptcy.

Bankruptcy As A Last Resort

After considering and trying all of these methods, you may still be in a position where it is impossible to pay off your debts. Many times this is due to the debt that remains after a series of medical emergencies, or even when an irresponsible spouse leaves their partner with hundreds of thousands of dollars in debt! In these cases, bankruptcy may be the only way to have a normal life.

Unfortunately, it is impossible to make general statements on an issue this important and complex. Therefore, you must consider your specific financial situation with an expert before making any decisions.

photo by digitalart

© 2011, KNS Financial, LLC. All rights reserved.

Related Posts:

Leave a Comment

Please note: Use of comments that are off-topic, personal attacks or contain profanity in the field below and/or any links, may be removed at my discretion. Also, by submitting a comment here you grant this site a perpetual license to reproduce your words and name/web site in attribution.

{ 7 comments… read them below or add one }

1 Marks Spencer@Business Finance

Filing for bankruptcy can seem very tempting, especially if you have enormous amounts of debt. Many people who are looking for debt relief often view bankruptcy as a practical option. They see the so-called “nuclear option” of going through a costly and damaging bankruptcy proceeding as the best option that is available to them. For some people, it probably is, but you should understand that bankruptcy was never designed to be a fix-all for debt problems. It was put into place for people who, through extreme situations, have no ability to pay back the debts that they have incurred.

Reply

2 Damon@Best Credit Counseling Programs

Hey Khaleef,
You basically covered all of the basis. Often times when clients come to me looking for a solution, they are actually in a situation where they are trying to avoid filing for bankruptcy, but they don’t have enough cash flow for a consumer credit counseling program or a debt settlement program to work.

One thing you can do and I often advise my clients of this in certain circumstances, is to let the payments go on the cards that they can no longer afford to pay. Then work their butts off to bring their income up. Within the first few months, creditors will offer hardship programs as you mentioned, then the offers will get into principle settlements after a few more months.

If the consumer is unable to increase their cash flow within a reasonable time, to take advantage of the hardship programs, or offer some settlements, then it may be that a bankruptcy is the only option left, but at least they gave it their best shot first to try and pay back what they could.

Reply

3 LifeAndMyFinances

Thanks for the link! I am very proud of our rapid debt repayment, and can’t wait to grow our wealth in the near-future.

Reply

4 Dana

I agree that bankruptcy should be the absolute last resort and only after counseling.

Reply

5 Living Frugal

I would only consider bankruptcy if I had debt over 100,000

Reply

6 krantcents

bankruptcy should require counseling to resolve the reasons that led to overspending and ultimately bankruptcy.

Reply

7 Jeff

Very good post. Bankruptcy should definitely be the last resort because it can lead to a heap of lifelong financial difficulties. Though people may feel relief, they will endure many difficulties after filing. There are so many other resources as you have pointed out, such as debt settlement, and finding more income sources. I always see news about some celebrity filing for bankruptcy… Maybe they should try to make money somewhere other than Hollywood.

Reply

{ 6 trackbacks }

Previous post:

Next post: