Bankruptcy is properly a “Last Resort Option” for addressing overwhelming debt. Before resorting to bankruptcy, an individual is well advised to at least look into other options, such as:
1. Some people can address debt problems by BUDGETING and LIFESTYLE MODIFICATION, usually for the first time in their lives. A budget might allow them to see where they are wasting their money and make a course correction. Learn to distinguish between what you “want” and what you “need”. Modifying your lifestyle can have a wonderful effect on your budgetary “bottom line” each month.
2. GET MORE INCOME, usually by finding a new job or a second job. The increase in money will help you deal with your bills, but you have to balance this positive effect against the negative effect that working more hours might have on your family life.
3. SELL ASSETS that you can do without, such as a boat or timeshare, and use the sale proceeds to pay down debt. Once again, you have to distinguish between “WANTS” and “NEEDS”. Keep only the assets that you NEED.
4. DEBT CONSOLIDATION LOANS, usually using your house as collateral – the classic “home equity loan”. This allows you to stretch out the debt repayment over a much larger period of time at a more favorable interest rate.
5. CREDIT COUNSELING SERVICES attempt to negotiate with your credit cards to reduce their interest rates. They aim toward having you make one lump sum payment to the credit counselors each month, who then make payments to your creditors in accordance with the particular arrangement made with that creditor.
6. NEGOTIATING WORKOUTS WITH YOUR CREDITORS, resulting in a modification of your debt obligation outside of bankruptcy. These arrangements are commonly referred to as “compositions” and/or “extensions”. A composition is simply when a creditor agrees in writing to accept less than the full amount owed, in full satisfaction of its debt. An extension is a written agreement in which the creditor agrees to extend the time for payment of their claims. These agreements are voluntarily entered into between debtor and creditors, so all parties have agreed to their terms and conditions, and the stigma and expense of bankruptcy can be avoided.