What you are about to read may stop you making the biggest mistake of your financial life.
In today’s debt ridden society many people are in severe financial difficulties, ofen for reasons outside his control. Bankruptcy for many, is the last step in a long road of financial pressures but many opt for this solution too early and without considering suitable bankruptcy alternatives. Whilst bankruptcy may get rid of the immediate pressures it isn’t necessarily the end of the problems.
When you file for bankruptcy your life becomes an open book for the court appointed bankruptcy officials. They may pry into some aspects of your life and you may be required to provide some your financial information, including bank accounts, savings, investments and assets. Anything that can be sold or converted to cash, including your family home and some valuable contents, may be disposed of and you may still have part of your income deducted from your salary to pay some of your debts.
But there are bankruptcy alternatives that may be less painful for many. Here I’ve described 5 bankruptcy alternatives
1. Negotiate with your creditors.
When you get into difficulties you should contact your creditors as soon as possible. Contacting them sends a signal that you want to repay them.
Lenders are anxious to get his money back and at times they may go to good lengths to help you. They may be prepared to re-finance your debt to have it paid over a longer period with lower installments.
They may ofen be prepared to reduce or freeze the interest rate and may even cut the balance owing up to 75%.
2. Refinance your mortgage.
If you have a property, which you own outright or on a mortgage, there is the real possibility of you being willing and able to refinancing your debts using a secured mortgage or re mortgage.
Refinancing your debts involves taking out a new mortgage, or an additional mortgage. Some lenders may lend up to 125% of the property value allowing you to pay some your outstanding debt and may even have some spare cash to treat yourself.
As the new loan is repayable over a long period of time (ofen 25 – 35 years) the monthly repayments are significantly lower than with short term debt and should be far more manageable
3. Refinance your debts using a debt consolidation loan.
Debt consolidation is where you take a new unsecured loan and use the funds to pay off your outstanding debts. Debt consolidation loans are repayable over a longer term at a relatively low interest rate and as a result the monthly repayments are lower. If the loan is secured on your property then the interest rate and payments may be even lower.
4. Sell your home and downsize.
1 of the easiest way to get out of debt is to sell your house or apartment and downsize or move into rented accommodation. The surplus cash can then be used to pay your debts and you may continue with your life without the pressure.
Selling up and relocating home is, however, a difficult and ofen painful option. If you do sell however. you may determine the price and remain in control. If the house falls into bankruptcy, you lose control and the house may be sold by
your mortgagor at auction for a price ofen considerably less than the price you may obtain in a regular sale.
5. A formal arrangement with your creditors.
A formal arrangement with your creditors can ofen be negotiated by specialist debt management companies and is filed with the courts. These arrangements are for 5 years. You pay an agreed amount each week or month to the debt management company and it is then divided between your creditors. While you continue to pay they are prevented from approaching you.
before the 5 year period is over some balance still owing is wiped out and you are free to live your life free of debt. If however you break the arrangement the regular result is bankruptcy.
As you may see, there are several sound bankruptcy alternatives for you to choose from. Everybody is under financial pressure from time to time, however you should not compound your problems by declaring bankruptcy too soon. Instead, choose the bankruptcy alternative that sounds the best for your particular situation and start working to repair your credit now.
Using a bankruptcy alternative means that in a few years you may have rebuilt your credit and may be back on track, whereas with bankruptcy it could be 10 years before you may get back to regular.
John Edmond worked for many years in insurance and finance and now writes on credit card management at Credit Card Debt. Go to and 7 way to get out of credit card debt for another article on credit card debt.
If you think that filing for bankruptcy may solve some your debt problems, you are being misled. Bankruptcy filing can come to haunt you for years and that is why this decision should be taken before careful analysis and deliberation. Plus, you should do your research to explore other bankruptcy alternatives, like debt consolidation, loan deferment, grace periods, etc., as a way to avoid filing bankruptcy.
No 1 ever wants to file for bankruptcy, because your credit history is ruined for possibly up to 10 years. That means that you may not be willing and able to apply for credit, rent apartments, secure jobs, order utilities, etc.
Bankruptcy does not mean that your debt may be wiped out and you may become debt-free and start fresh. Unfortunately that is the impression most people have and it is not correct. You may be willing and able to lower or even eliminate some bills, but it comes at a heavy price.
Another disadvantage to bankruptcy is that banks and other financial institutions may exploit you by charging a higher rate of interest. It may take years of good financial management to become ‘clean’ again.
There are many way to avoid bankruptcy. 1 of the most standard way is to do your research by exploring what other alternatives are available to you. You must speak to your creditors to see if you may work out a different payment plan while you solve your financial problems. for instance, if you lose your job and are unable to make some payments, and if you have the best credit history, most financial institutions may work out an arrangement under which you may avoid making full payments till you secure a job.
Some other ideas are to explore options for debt consolidation. Debt consolidation can be defined by the action of combining several loans or liabilities into 1 loan. Put another way, debt consolidation is the process of taking out a new loan to pay off a number of other debts. Most people who consolidate his debt are usually doing it to attain a lower interest rate, or the simplicity of a single loan.
You may need to make lifestyle changes also. for instance, you may have 200 channels of cable television but might merely watch it a couple of hours a week. There are a lot of good programs on regular channels that you may watch and entertain yourself. Similarly, stop buying coffee in the morning (buy your own coffee and brew some fresh each morning at home). Limit how many times you go out to eat, take your own lunch box to work, avoid unnecessary trips in the car, don’t talk too long on the phone, and avoid some waste that you see in your life.
Save money some the time and spend less than you earn. it is a well-known saying that the more you save, the better off you may be. Buy insurance, particularly health insurance. The benefits of health insurance are innumerable and are well worth the price.
Chris Simons is a prolific freelance writer. You are welcomed to see http://bankruptcy.cyberinformer.com, for more information on Bankruptcy.
Bankruptcy should always be a last resort (see our Debt Relief section for bankruptcy alternatives). However, if you are determined to file bankruptcy but have not done so yet, then please take your time and don’t rush the process – it is more important to ensure that some your bases are covered rather than to make a mistake that may price you later.
- Obtain Credit Reports. You absolutely need to obtain your credit reports from the 3 major credit-reporting agencies (Experian, Equifax, and TransUnion). Fortunately, you may conveniently obtain some 3 of your reports online in merely minutes.
1. With the reports direct from each bureau you may have access to a file number and a phone number needed for accessing customer service.
2. You may see the addresses for each creditor on the credit report. If it is not there, then you may call customer service to ask them to provide you with the missing information.
3. When you call the bureau you may ask them to provide you with the phone numbers for each of the companies showing on the credit report.
- Get Updated Information. You need the most up to date information you may have when filing for bankruptcy.
1. Call each creditor and ask them how much is owed and for the address where payment should be sent.
2. If they don’t handle the account, then ask them for the name and address of the collection agency that may take payment.
3. Call the collection agency and ask them how much is owed and for the address where payment should be sent.
4. When dealing with creditors and collection agencies don’t let them bully you or upset you over outstanding balances. Just collect the information you need.
some you have to say is, “Thanks. I may call your company back soon regarding this matter.” Don’t give them time for a rebuttal – just hang up.
If they push the matter, then merely as a last resort tell them you may be filing bankruptcy. Give them the name and number of your attorney and end the call.
Some companies may take this as a reason to step in and offer a settlement to reduce the amount owed in order to get you to pay. And at times people do call creditors and suggest bankruptcy just for this edge in negotiating a settlement, even when they don’t intend to file.
You absolutely don’t want to use this tactic if you are going to follow through with the bankruptcy. They may try to default your bankruptcy petition if they can.
- Identify some Accounts. It is important to identify some of your accounts.
1. If you don’t see a creditor or collection agency on the credit report you know for a fact you owe money to, then you need to find some billing statements or collection letters you may have received. These statements and letters may have necessary address information and phone numbers along with amounts still owed.
2. If you have no such information, then try to skip trace online to locate these companies. I personally like using this sight for look up:
http://www.bigbook.com/
You don’t have to know what city the company is located in, but definitely try to find the state.
3. If that is still not helping, then you may also try the Better Business Bureau sight:
http://search.bbb.org/search.html
- Make a list of accounts for your bankruptcy attorney. Your attorney may need the addresses, balances, and account numbers to complete the bankruptcy papers.
- If there are creditors that you want to continue paying, then it is very important at this time to tell your attorney that you want to offer reaffirming on the debt. The attorney may then send the offer to the creditors you have selected who must accept it. Then the judge must accept the offer too.
The creditors may continue reporting the balance owed and show the status “reaffirmed” on your credit report.
- some other creditors depending on the bankruptcy:
1. Chapter 13. Once discharged then the balance may show as zero. The public record listing may remain 7 years from the file date. The accounts included in bankruptcy may remain on your credit report 7 years.
2. Chapter 7. Once discharged then the balance may show as zero. The public record listing may remain 10 years from the file date. The accounts included in bankruptcy may remain on your credit report 7 years.
For further information on reporting periods please review the Fair Credit Reporting Act at the Federal Trade Commission web sight, http://www.ftc.gov. Other recommended reading is the staff opinion letters regarding reporting periods.
- Usually prior to filing bankruptcy defaulted accounts go into collection or charge off status. The creditor stops reporting account information to the credit reporting agencies and turns the defaulted account over to a collection agency. The collection agency then picks up on the collection efforts and may from that point on report account information to the credit-reporting agency. The creditor is taken out of the loop.
Because account information is now handled by collection agencies instead of creditors, by the time your attorney sends your creditors notice of the account being included in bankruptcy, it is typically no longer “in his system” to properly notify the Credit Reporting Agencies to update zero balance and include in bankruptcy status.
Creditors have the means and responsibility to manually update account information with credit reporting agencies. But at this point no 1 is requiring creditors to change his policy and address this issue. If you have a complaint, you may do the following:
- File a complaint with the Federal Trade Commission. They regulate the Credit Reporting Agencies.
- File a complaint with your attorney generals office.
- File a complaint with the regulating company over each of the creditors.
- Your bankruptcy attorney can file complaints against creditors who do not report accurately.
When creditors don’t update account information with the credit reporting agencies, then you get an incorrect credit report that still shows you owe on the accounts in question, and that they are currently in collections or charge off status when in fact they are not.
The problem with this is that if you apply for new credit before your bankruptcy is discharged, then you are likely going to be declined because the new lender may assume that you still owe on the debt.
The clear, quick way to fix this problem is to:
1. Obtain a copy of your bankruptcy and discharge papers from your attorney or the courthouse. This may include a copy fee.
2. Make 3 copies of the section of papers that list some of the creditors and collection agencies that were included in the bankruptcy – usually this is called the Schedule F.
3. Forward these documents along with the discharge to some of the credit-reporting agencies (described below) requesting that each creditor included in the bankruptcy be updated to properly reflect a zero balance with the status included in bankruptcy.
Experian
PO Box 2002
Allen, TX 95013
Equifax
P.O. Box 740256
Atlanta, GA 30374
TransUnion
P.O. Box 1000
Chester, PA 30374
4. Be sure when mailing correspondence to the credit reporting agencies to include a copy of your driver’s license and mail “certified return receipt requested”. This may ensure disputes are processed with little delay.
Finally, if you have a creditor or collection agency which is not honoring your bankruptcy and continuing collection efforts, then be sure to contact your bankruptcy lawyer. Give your lawyer the name and address of the company bothering you so that he or he can send them official notice. Follow up with the lawyer if the creditor persists in harassing you. It is a violation and they can be held accounta
ble if they don’t cease before notification of the bankruptcy.
As with some consumer issues, knowing your consumer rights throughout the bankruptcy process is essential. Taking a proactive approach at the onset of the process may help you on your “road to credit recovery”.
Pammila Phillis is a staff writer for CardRatings.com he is also a frequent contributor to the http://www.CardRatings.com message board and to the Star Credit Repair forum, a forum that he administers.
