Don't File Bankruptcy! Four Options to Escape the Debt Nightmare

If you're in over your head financially and keep getting further and further behind on your monthly payments, bankruptcy might look like the only solution to your money problems. Filing for bankruptcy, however, should be the option of very last resort.

In the long run, the damage it does to your credit could haunt you for years to come and prevent you from being a homeowner, getting another car loan, and even keep you from being approved for an unsecured credit card.

In short, filing for bankruptcy is committing credit suicide.

Bankruptcy 101 - Quick Facts You Need to Know

Before you make any decision about bankruptcy, you should know the basics. Bankruptcy can help you either eliminate or repay your debts through a legal process that ends in a court ruling. Under Chapter 7 bankruptcy, or "liquidation bankruptcy," all non-exempt property is sold ("liquidated") to pay down debt, after which unsecured debts are erased.

More common is Chapter 13 bankruptcy, or "reorganization" bankruptcy. Chapter 13 bankruptcy allows you to keep your property as long as you make arrangements with creditors to repay your debt by scheduling agreed-upon monthly payments through a detailed repayment plan.

How Bankruptcy Destroys Your Credit and Good Name

Bankruptcy can remain on your credit report for 10 years and, as long as it does, getting any type of unsecured credit, whether for a home loan or a credit card, will be almost impossible. In the meantime, bankruptcy could cause you to lose most or all of your property.

Luckily, there are several alternatives that could help you avoid bankruptcy:

1. Belt-tightening - This works best with smaller amounts of debt and involves determining exactly where your income goes, what your monthly budget should be, and what "extras" you can do without.
   
   Oftentimes, this is as simple as cutting out restaurant meals and canceling your cable subscription. Maybe you should consider a part-time job or Ebaying the contents of your garage for a little extra cash.
   
   
2. Debt Consolidation - With debt consolidation, you can combine balances from high interest credit cards into one larger loan with a lower interest rate, meaning your monthly payment will be lower and it will be easier to make progress in paying down the principal.
   
   
3. Debt Counseling - You might benefit from the help of a debt counseling company, who can contact your creditors on your behalf and try to negotiate lower interest rates. This will lower your monthly payments but, unfortunately, it will also lower your credit score - so you might want to consider the other options here first.
   
   
4. Debt Settlement - If it's too late for the above options and bankruptcy is looming, debt settlement could still be better than bankruptcy. Debt settlement companies take control of your bills and you begin making monthly payments to them instead of your creditors.
   
   With the leverage gained by withholding payment from your creditors, the debt settlement company will negotiate with your creditors to settle your debts, lowering the actual amount you owe.
   
   This might be an option for you if you already have very bad credit, because all late payments and collections accounts will go onto your credit report, decimating your credit score.

As you can see, bankruptcy is not always your only option to get out of overwhelming debt. Consider exploring the suggestions above to find the most expedient way to start getting out of debt while still preserving what's left of your credit.

Utilizing the credit experts at Lexington Law is another option.  If you feel overwhelmed and would like some assistance with your credit repair challenges, Lexington Law is ready to go to work for you right away. Their legal experts can help you get started on fixing your credit now.

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