There are many Americans struggling with a lot of debt. Being in this situation can lead people to think of filing bankruptcy in order to get rid of debt. Yet bankruptcy should only be used as your last resort. When you have too much debt, is there a way to avoid bankruptcy by using specific debt management techniques and regain your financial footing?
The basic answer to that is yes. When thinking about whether to file bankruptcy, you should consider first that probably you won’t be able to discharge, or eliminate, every cent of your debt. There are some debts, such as student loans and unpaid taxes, which can’t be avoided using bankruptcy. And if you have a job that pays regular income, you will fall under a Chapter 13 bankruptcy, which means that some of the debt you own will be paid back according to a repayment plan. If you find your self facing Chapter 13 then, it might be better to just set up your own plan outside bankruptcy.
Start putting together a repayment plan with debt management by talking to your lenders to determine who is willing to work with you on affordable payments. When they know your are thinking about bankruptcy, this might incentivize them to work with you. Start by calling your secured creditors, which are your home or car lenders, so that you don’t lose your home in foreclosure, or your car to repossession. After that, you can talk with the unsecured creditors who hold your credit cards. These lenders can be paid last, but still try to get affordable monthly payments set up with them. Look online as well for websites where you can download a free debt snowball spreadsheet or other resources.
If you don’t currently have a job, however, without any steady income, then this is a situation where you could benefit from filing personal bankruptcy. Without any way to pay back debt, you would file Chapter 7, which then leads to a discharge of your debts. Keep in mind that this means you may have to sell assets like your house or cars, to pay these lenders. You can still avoid bankruptcy even if you don’t have a steady income. Ask your lenders if they can give you a temporary forbearance on any monthly payments until you can find work again.
In building a debt management plan on your own, first set aside cash to pay for any immediate personal needs to survive, include food, shelter and utilities. Next, you can make payments to any secured loans you have, trying to keep them current if possible. Lastly, after those, use any cash you might have left over to pay unsecured debts such as credit cards. For student loans, contact the lenders, as they will usually work with you to set up a temporarily hold on your accounts.
If any unsecured or secured lenders will not work with you, or if they begin collection proceedings, then you might be forced to file bankruptcy to stop them from getting a judgment against you. But that should be your last resort. Only use bankruptcy if there is no way you can repay your debts on your current income. Stick to your payment plans, and once you get on your feet you can increase your payments.
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