What Are Alternatives to Bankruptcy?
The bankruptcy process offers some tremendous benefits, but also some serious downsides. Not only does it stain your credit history, but the process is complicated and expensive -- expect to pay hundreds of dollars in filing fees, and that's without a lawyer!
As painful as bankruptcy is to the debtor, it's even more so for the creditor. In a typical bankruptcy, creditors receive little, if any, of the money owed to them. As a result, creditors are generally willing to negotiate the terms of debt rather than forfeit the whole thing in bankruptcy. Mortgage lenders are in the same boat; it's a much better deal for them to refinance your home at a lower interest rate than to foreclose.
So, with the help of a credit counselor, contact your creditors and mortgage lender and see if they are willing to lower minimum monthly payments or interest rates on your balances.
If your creditors won't negotiate, consider other ways to avoid bankruptcy. Attempt to sell property and other valuable possessions that could be used to pay down your debt. Get a second job and attempt to live on a strict budget.
In many cases, though, no amount of belt-tightening and yard sales will make a dent in the tower of debt incurred by medical bills, a failed business or a costly divorce. If there is truly no other option, then it's time to figure out what type of bankruptcy is right for you.