You have a lot of debt. There may be high medical bills, loss of a job, divorce, or other unforeseen circumstances, which caused your bills to get the best of you. Your mortgage and car payment are a few months behind, and you’re lucky to be able to afford the minimum payments on your credit cards. You don’t answer your phone, because you know your creditors are calling you to remind you that your payments have not yet been received.

If this is what you’re dealing with, you may be considering bankruptcy. You might be stressed out, ready to give up and start all over, but filing bankruptcy has serious consequences on your credit record.

Bankruptcy is one of many options to solving your debt problems; Ask yourself some questions and look into other possible alternatives before settling on this drastic measure.

How much do you really need to pay your monthly expenses?
Add up your mortgage or rent, car payment, insurance payments, utilities, groceries, gas, minimum payments for current debts, and any monthly extras you pay for. Is your income high enough to support your monthly expenditures? Are there ways you can save money every month? Do you have unnecessary club memberships or go out for entertainment often? Can you cut back or cut out cable service? Do your kids expect to get the coolest clothes and the latest in gadgets? It’s time to figure out what is really needed and what you can live without.

Is there anything you can do to increase your income?
I know you work hard, working harder is probably the last thing you want to do. There may be ways to increase your income relatively painlessly. Are you due a pay raise or are you eligible for a promotion? What can you do at your current job to increase your pay? Can you pick up a few extra hours a week at your current job? Do you have a hobby that can be turned into a weekend business to bring in extra income? Do you have a skill that could make you more money? Do you have an extra vehicle you can sell? Can your kids baby-sit or mow lawns for their own extravagant desires?

Try to negotiate with your creditors.
Explain to your creditors that you want to pay them, but you cannot afford the required payment. Be honest with them and let them know what events in your life have affected your financial situation. You might be able to have your payments reduced or your interest rates lowered. Especially if the account has already gone to a collection agency, they might be willing to accept less than the amount you owe if you can pay it in one lump sum. Creditors will often do what they can to help you pay at least part of what you owe; they know that if they don’t work with you, and you file bankruptcy, they won’t get anything.

Seek the help of a reputable nonprofit consumer credit counseling service (CCCS).
You can find the nearest CCCS by calling (800) 388-2227 begin_of_the_skype_highlighting (800) 388-2227 end_of_the_skype_highlighting or by visiting www.nfcc.org. The new bankruptcy law requires that people filing for bankruptcy go through credit counseling within six months before filing, so if you still think bankruptcy may eventually be the choice you make, you should go through an agency that is approved by the U.S trustee for credit counseling in the bankruptcy system. In repayment plans arranged through credit counseling services, you generally make monthly payments that are distributed among your creditors. You might still have to pay interest on some or all of your debts, but in many cases, creditors may be willing to waive or reduce interest charges and delinquency fees if you ask them to.

Can a debt consolidation loan help you?
A debt consolidation loan may help you pay off all your debts and reduce your monthly payment.Just be careful that if you do consolidate your debts, you don’t run your credit cards back up. Many consumers breathe a sigh of relief when all their bills are finally paid off with a debt consolidation loan, and then they see all their zero balance credit cards as a temptation to buy something new. Don’t let this happen to you! And be very careful if you use your house as collateral to get a home equity loan to consolidate your debts, you can lose your home if you can’t keep up with the payments. A debt consolidation loan may be the answer you’re looking for IF you don’t allow yourself to run up new debt. If you do run up new debt after getting a debt consolidation loan, you would just be putting off the inevitable bankruptcy.


It’s possible that after you’ve explored other options, you find that bankruptcy is your only choice. At least you’ll know you made a genuine effort to pay your debts, and that you did everything you could to avoid filing for bankruptcy.




Sources:
The American Bar Association Guide to Credit and Bankruptcy
Random House Reference2006