7 Alternatives to Bankruptcy

I don't want to file bankruptcy. 

What else can I do?

First off, if bankruptcy is not right for you, we would never recommend filing bankruptcy.

And that would be too bad because bankruptcy is:

(1) The only thing that lets you get rid of debt without paying it, and 

(2) The only thing that puts you "in charge", instead of your creditors.  Everything else leaves the creditors "in charge".

Let's start by making sure that something other than bankruptcy is right for you.

Here are some of the important questions to ask yourself:

• Do you have enough income to keep paying all your bills all the time?
• Are you pretty positive that you ability to pay is not going to change any time soon?
• Are you gradually getting out of debt each month, rather than deeper in debt?
• Are you willing to cut back on your lifestyle and other expenses for the months or years that it will take to get out of debt?
• Do you have the life energy to make it all the way to debt free, regardless of how many months or years it takes?
• Do you have the discipline to make it all work, regardless of how long it takes?
• Do you still have credit to buy the things you will need, like a vehicle or a washing machine, or to get you through the inevitable emergencies that come up in life.?
• Are you the kind of person who would rather die than not pay all your bills?
• Are you willing to keep paying your creditors, even if that means there is less and less money for your kids?
• Legally, is there some reason you don't qualify to file bankruptcy? 

If you answer "yes" to ALL of these questions, bankruptcy is probably NOT a good fit for you.  

Assuming bankruptcy is NOT a good fit for you, we are back to your question: "What else can I do?".

Here are seven (7) possible answers.

Disclaimer: All seven(7) of them have with significant "downsides" to consider.

(1) Get a consolidation loan.

What it means:

You take out a new loan to pay off other debts.

It makes sense if:

• It doesn't get you deeper in debt.
• It lowers the interest rates you are being charged.
• It provides you with a lower monthly cost.
• It does more than just "kick the can down the road"
• It doesn't put at risk other assets (like your home or your vehicle)

Downsides:

• You can't borrow your way out of debt.
• This assumes you qualify for a consolidation loan.
• The lender is "in charge", not you.
• It may lengthen the time period it will take to get out of debt.
• It may cost you more in the long run.
• It can put your home or vehicle at risk if you have to list them as "collateral" to get the loan.

(2) Keep "Borrowing from Peter to pay Paul":

What it means:

We see this a lot.  This is where you keep taking out new credit cards, perhaps with lower initial rates, to pay off other maxed out cards with high interest rates. 

It makes sense if:

• You're sure or still hopeful something really good, like a better job, is just around the corner.
• You just don't know what else to do.
• All you need is something temporary to "hold you over".
• You don’t know about or haven't thought about bankruptcy as a solution; you don't know how bankruptcy really works; or you just aren't ready to consider a more permanent solution like bankruptcy.

Downsides:

• Kicking the can down the road is only a temporary fix.
• Sooner or later, there is no "Peter" to borrow from.

(3) Creating and living on a budget:

What this means:

None of us ever given a course in the benefits of budgeting or how to set one up.  Probably, because as a younger person, not being a bread winner yet, we would not have paid attention anyway.  Budgeting only seems like a good idea when you finally "hit a wall" with your finances.  That said, budgeting might be exactly what you need to "live in debt" or to "dig out of debt".

If makes sense if:

• You are willing to cut back or hold back on increasing your lifestyle to live within your means and still have enough money over to pay all your monthly debt payments.
• You are able to discipline yourself to live on a budget.
• You are willing to not spend money you don't have.

Downsides:

• You can't discipline yourself enough to make it work.  Living on a budget takes a lot of discipline that a lot of people don't have, especially those used to pulling out a credit card for everything, rather than paying in "cash".
• You don't have enough income to make the budget work.
• You aren't happy with the lesser lifestyle necessary to make a budget work.

(4) Hire a "debt settlement" company:

What it means:

These are companies that claim they will try to negotiate with your creditors to get rid of some proportion of your actual debt, not just the interest.  To get the attention of your creditors, they need for you to be seriously behind on your payments, and they need money to negotiate with.  To set this up, they will tell you to stop paying your creditors, and to send them the money instead.  After you have sent them a bunch of money over a period of months or a year or more,  they would then contact your creditors to try to make a deal for you to pay less on the debt.

This makes sense if:

• You are already behind and can quickly come up with the money they need to negotiate with.
• The company is not just scamming you out of your hard-earned money.
• For some good reason, you don't qualify to file bankruptcy.

Downsides:

• The operative word is "try".  They can make you no promises.  If they do promises, beware.  You are being lied to.
• Your creditors don't have to "play ball".  That is, you can't force them to participate, and you can't keep your creditors from later backing out.
• Bottom line: Your creditors are still "in charge" all the way, not you.
• This assumes they are not just scamming you out of your money and leaving you worse off.
• You are willing to take a hit on your credit score.  If your credit score is already in the toilet, no problem. But if you have a decent credit score, no paying your creditors will kill off whatever credit you have.
• There is no guarantee your creditors will play ball.  Unlike with bankruptcy, the debt settlement company has no power to make your creditors do anything. 
• Even if the company is not scamming you, the debt settlement company will keep a percentage of your money, even if they are not successful in getting your debts lowered. 
• You could end up worse off and having wasted a lot of valuable time.
• In the meantime, while you are sending your money to the debt settlement company, you will have to suffer through the nasty collection calls and the prospect of being sued.

(5) Enter a credit card industry sponsored "debt management" program

What it means:

These are programs sponsored by certain credit card companies, where credit card companies will agree to lower your interest rate somewhat, and maybe waive some fees, if they are convinced that you might just not pay them or worse, file a bankruptcy case and wipe them out completely.  Where successful, you get a somewhat lower interest rate, and a few less fees, but you still have to pay the entire principal of the debt in full.

This makes sense if:

• You qualify.
• You can for sure finish the entire program from start to finish,  no matter how long it takes.
• You are willing to live without the use of your credit cards in the meantime.
• You are willing to cut back on your lifestyle until your finish the program.
• You are willing to take a hit on your credit score due to the lessening of your "utilization rate".

Downsides:

• Your creditors do not have to play ball. That is, once again, you can't force them to participate, and you can't keep your creditors from later backing out.
• Bottom line: Your creditors are still "in charge" all the way, not you.
• This assumes they are not just scamming you out of your money and leaving you worse off.
• You won't get use their credit card while you are in one of these plans.
• Since you won't be paying your full credit card payment, your delinquency will still be reported to the credit bureaus.  As a result, your credit score will take a hit.
• If you drop out, everything will get reversed and you will owe all the money you did not pay, at the full contract rate of interest, plus fees and penalties,  making your situation worse off than ever.

(6) Modify or refinance your mortgage.

What it means:

If you qualify, you would be modifying the terms of  your mortgage or taking out a new mortgage to replace the one you have.  Of course, this assumes you own a home.

This makes sense if:

• You still have a decently high credit score.  Otherwise, you won't qualify or if you qualify, the interest rate would be too high to make sense.
• You would, in fact, qualify for a mortgage modification or new mortgage to replace the one you have.
• The modification would lower your interest rate.
• Your monthly payments would be significantly lower.
• You are wiling to pay on your mortgage for a few more years than would be the case without a modification.

Downsides:

• Mortgage lender do not have to play ball. You can't force a mortgage lender to work with you.
• Bottom line: Once again, the creditors are still "in charge", not you.
• The lower your credit score, the less likely you will qualify for a modification or a refinance.
• To get a lower mortgage payment, you will likely have to agree to pay on your mortgage for a longer time, leaving you with that many more years to pay in order to pay off your mortgage, and that much older by the time you do.
• You will either have pay to pay the costs of the modification or refinance (which can be $10,000 or more upfront or have those costs added into your mortgage, which increases the amount of your mortgage and the total interest that would have to be paid.

If you wish to explore this option with the help of a mortgage lender experienced in dealing with people who are already in bankruptcy, who have already finished their bankruptcy or who have something less than a stellar credit score, we recommend you contact Rodney Debro to review your situation to see what you may qualify for:

Rodney Debro
NEXA Mortgage, LLC
Mortgage Loan Officer
Email: rdebro@nexamortgage.com
Cell phone: 919-215-8728

(7) Do nothing:

What this means:

This is where you just give up and do nothing. That's right.  Do nothing.  We mention this because, "doing nothing" is always an option.  For some people, this is a way to just "check out" of responsibility and to thereby avoid stress, worry and sleepless nights.  There is a certain amount of comfort in being able to say: "I just don't care".  For some people, "giving up" is the solution. There is nothing wrong with this if you are willing to suffer the downsides of doing so.

This makes sense if:

• You are what we call "judgment proof".  You are "judgment proof" if you have little enough property that, even if sued, you have your creditors can take or would want to take, and
• You don't care if you never have any credit again

Downsides:

• You will have no credit to buy a house, car, truck, washing machine, etc., or to cover you in case of any emergencies.
• Your kids will suffer all the consequences along with you.
• You will have no credit cards, likely no bank account, and will have to pay for everything in cash.
• You won't be able to rent a decent apartment.
• You credit score will be in the toilet and stay there.
• You will eventually get sued and have judgments against you, even if there is nothing for them to take from you.
• You will not qualify for jobs or anything that depends upon the existence of a good credit report.
• You will have effectively checked out of society.

Bottom line: Bankruptcy is better than ALL of the alternatives.

If you have more bills than you can pay and your credit score is below 600 or on its way in that direction, nothing beats the results that come from filing bankruptcy. 

Why?  As mentioned above, because filing bankruptcy is:

(1) The only thing that lets you get rid of debt without paying it, and

(2) The only thing that puts you "in charge", instead of your creditors. 

How?  Using the power of the U.S. Federal Bankrutpcy Laws.

Is it any wonder that your creditors hate bankruptcy and why they will tell you almost anything to scare you away from looking at bankruptcy too closely.