Bankruptcy Alternative: 3 Alternatives You Can Take Right Now

Bankruptcy is something that, if you are by any means able too, you should avoid at all costs. Having gone through a bankruptcy myself, I can tell you that there is nothing fun, simple, or easy about it. It’s a mark that I will live with the rest of my life. This guide will show you various ways to avoid Bankruptcy. Some of these options have consequences, but none as severe as bankruptcy.

I hope that as you read through this financial planning guide you will commit to taking action right now to avoid bankruptcy. There are many paths to avoiding a bankruptcy, but they all require action, and hard work on your part. I will list the options from least impact (paying your bills on time, getting out of debt a dollar at a time) to the most impact (entering a debt management plan).

Cut Expenses, Start Paying Down Creditors

If you have a manageable level of debt you can avoid bankruptcy. What is a manageable level? Most experts agree that if you have unsecured debt that is higher than your annual income, it that is not manageable. For example, let’s say I make $35,000 a year. $20,000 in credit card debt is manageable, 60,000 is not. Depending on the extremes you are willing to venture to in avoidance of a bankruptcy, you could stretch that manageable definition a little.

If you have a manageable level of debt, your best option is to pay down your debt. There are two theories on this. One, you pay the highest interest debt down first. Two, you pay the debt with the smallest balance down first (also known as the snowball method). Mathematically, paying the highest interest debt will get you out of debt the fastest. Psychologically, many argue that the snowball method keeps you more motivated. The thought being that you stay with the debt pay down and get more and more excited (the snowball keeps building) as you pay larger and larger debts down. If you can budget in $200/mo to pay down the principle on a credit card, or even $100, you can snowball your way out of debt. I could write volumes on tactics and strategies for managing your expenses. But it’s quite simple: spend less than you earn. take the rest. pay the debt down.

A Debt Management Plan

If you’re monthly credit card payments are just out of reach, and you’re done everything you can to reduce expenses, a debt management plan might be your solution. When you enter a DMP, your interest rates are dramatically reduced, and all your unsecured payments are paid in a lump sum to the plan provider. A DMP has severe consequences on your credit score, though not nearly as severe as a bankruptcy. It is not a public record, and you will not have to go to any hearings like you do with a bankruptcy. I was in a debt management plan for a few months as I tried with all my heart to avoid bankruptcy. In my situation my debt was just too much, but I wish I had been able to pay off my plan.

When to file Bankruptcy

If you can’t do options 1 or 2…you might have to look at chapter 7 bankruptcy. It’s not the end of the world. A local bankruptcy attorney can help you understand the differences between Chapter 7 bankruptcy and Chapter 13 bankruptcy, so that you can make an educated decision about the best next step for you. Fill out the form below for a free bankruptcy case evaluation.