Most people who consider bankruptcy have one thing in common — unmanageable debts. Knowing that repercussions of bankruptcy that can virtually blot out your financial aspirations, it’s only fair to give it a second thought, or in other words, think of bankruptcy alternatives.
Personal bankruptcy alternatives
The single most important factor to determine the available alternatives to bankruptcy arising out of personal debts is the “type of debt”. While unsecured debts throw open a large number of alternatives, the options are scanty in case of secured debts and professional advice is the best option in such cases.
Here are some of the personal bankruptcy alternatives to look up to while dealing with unsecured debts:
1. Debt consolidation – Debt consolidation should be considered in case it is difficult to level out your debts with your income, or when you have multiple creditors charging high rates of interest on your debts. The procedure involves clearing away debts by taking up a single, low-interest loan. Once you have your debts consolidated onto a single loan, you are required to make a single payment per month, deal with a single creditor, and since consolidation loans come relatively cheap, pay less in interest.
2. Talk terms with your creditors or engage a non-profit debt reduction company – It is a good bankruptcy alternative to talk terms with your creditors on payments, tenures, interest rates or other impositions levied on your debts. Most creditors are critical of their debtors filing for bankruptcy as they stand to lose out their entire lending. Creditors would agree to cut a deal by relaxing certain norms on the debts which will enable you to accommodate repayments regularly.
You can also try out non-profit debt management companies which will work on your behalf to settle and negotiate terms with creditors. Once repayment terms are settled, you make payments to the debt management company where it is accumulated over a period of time and then handed over to your creditors. The United States Trustee’s website enlists many non-profit debt management companies.
3. Consider selling off any assets – Selling off assets to clear away debts is a proposition to be considered when all other options are leading to bankruptcy. In view of the long-term effects of bankruptcy, parting away with assets may be deemed righteous in certain conditions.
4. Stay put; do not make any moves – Strange as it may sound but sometimes ceasing your moves may turn out to be one of the alternatives to bankruptcy. Consider this as the last-ditch effort to avoid bankruptcy; when you have no reliable source of income or any noticeable assets to show up. Under such circumstances, you can be liable for judgment proof — a condition where your creditors can sue you but shall not be able to extract anything in return. The overdue debts are written off your records in seven years. However, consider the fact that the creditors have every right to ask for repayment in case your finances improve over time.
Business bankruptcy alternatives
It’s a different ball game altogether when putting up with a falling business. Before calling for bankruptcy, make all the moves possible to stay afloat. The realization of the move depends on many variables — the state and nature of your business, the debt amounts, and available resources etc. If the nature of debts is “unsecured”, try the alternatives listed as above. Besides those, here are some business bankruptcy alternatives worth a try to avoid falling in the bankruptcy net.
1. Debt restructuring – Contact your creditors and shape up a restructured debt plan. Remember that creditors do not stand to gain anything out of your bankruptcy, and would be willing to work with you if they are assured of timely and regular payments. In most cases, debt restructuring generally leads to reduction in debts along with prolonged repayment tenure. It will require a dedicated and thorough effort though to contact all your creditors and get the matter on the table.
2. Formal arrangement – You can try out a formal agreement under Chapter 13, wherein you can formally propose a repayment to your creditors for a fixed time-period. The repayment is so arranged that you only pay a part of the total debts incurred. This gives you the comfort of cutting down monthly payments to a bare minimum. The remaining debts can be waived off if your creditors agree to.
Remember that picking out the best bankruptcy alternative is essential. Review your circumstances thoroughly and make the best move.