Bankruptcy is a serious step in the life of a struggling debtor. The implications of filing should not be blown out of proportion, of course, but they are significant. For this reason, it is important for debtors considering filing for bankruptcy relief to always consider the available alternatives.
By alternatives, we refer here not to things like liquidating your assets, making lifestyle changes and looking for better paying work. While these certainly are options for debtors, most people who are considering the possibility of bankruptcy have exhausted the limits of what they are capable of doing on their own. What we refer to are intermediate alternatives such as credit/debt counseling, debt settlement, and debt consolidation.
Debt settlement, for example involves negotiating with creditors to pay less than what is due on accounts. This could result in a lower credit score and could have tax implications, but it can also provide relief. Debtors should be cautious about using debt settlement services, though, as there are scammers out there.
Credit/debt counseling, another bankruptcy alternative, is actually required in the initial stages of a personal bankruptcy filing, but it can be pursued apart from bankruptcy as well. The idea behind credit counseling is to educate a consumer on how to make wise use of credit and how to manage finances. This may or may not be helpful, depending on the debtor’s long-term habits. When combined with debt management, however, it can be beneficial.
In our next post, we’ll continue this discussion, looking a bit more at debt management as a bankruptcy alternative.