If you are currently losing sleep over the amount of debt you have accumulated, and if you dread the sound of the phone or the mailbox because you are being constantly badgered by your creditors, then you may have come to the conclusion that it is time to do something drastic about your money worries. Of course, for some people, bankruptcy can be a very helpful way out of financial stress, but it does come at a price – both in terms of legal costs and its impact on your current and future financial status. Bankruptcy has its place, but should only ever be seen as the final option when nothing else will help ease the pressure.
If you are trying to find answers to your debt problem, here are a few things to rule out before you consider filing for bankruptcy:
Are There Any Assets You Can Sell Yourself?
Under the most extreme type of bankruptcy, chapter 7, your assets will be taken from you and sold to help pay off some of what you owe. While some assets are exempt (and these will vary depending on where you live), you will need to be prepared to lose a lot of what you own if you go for this option. It may therefore be better to instead consider selling your assets to pay your debts instead, if you have things of significant value. You could perhaps sell your car and use public transport or buy a cheaper one, or you could sacrifice other valuables like jewelry, firearms, musical instruments or collections. Even clothes and other simple items can have some value on things like eBay, so you don’t need to have a house full of treasures to raise money in this way. If you own your home, you could also consider downsizing to a smaller or rented property.
Can You Borrow Money?
Obviously borrowing money was part of the problem, so you don’t want to get into more official debt, however there may be friends, family or even your employers who can offer you a better loan with more time to pay and no interest. Nobody likes approaching people they know for money, but equally, a lot of people would rather help out a family member than see them face bankruptcy.
Some companies offer debt consolidation – where they combine everything you owe into one sum you pay off monthly, usually significantly reducing your outgoings. They will also deal with your creditors so you won’t have the stress of constant calls and letters. This is in some ways similar to what will happen if you contact a chapter 13 bankruptcy lawyer and go through the chapter 13 rather than chapter 7 process (in that you’ll still have to make monthly payments), but if you do it privately like this you won’t have to deal with legal fees or going to court, and it can be less damaging to your credit rating. Of course, debt consolidation is only really useful if you have multiple creditors and can afford the monthly repayments, whereas chapter 13 will also help you reduce monthly payments if you only owe to one creditor.
Monica Smith is a financial consultant at the GoldBach Law group, a firm that offers effective solutions for resolving debt situations. She enjoys sharing her ideas regarding finance and debt solutions via blogging.
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