Considering Alternatives to Bankruptcy – 3 Reasons Not to File

Explore Reasons Why Bankruptcy is Not Always the Best Choice, and Consider a Few Alternative to Bankruptcy that Might Just Apply to your Situation

When you are facing a large amount of debt that you can’t repay in the foreseeable future, bankruptcy can seem a tempting option. Bankruptcy is seen as a quick solution to your financial problems and a way to erase your debts and help you to start over. There are, however, several serious drawbacks to taking this course of action. Before you make up your mind to file for bankruptcy or not, you should be aware that there are alternatives. Let’s look at three reasons why declaring bankruptcy might not be such a great idea after all.

1. Bankruptcy Doesn’t Discharge All Debts

Many people mistakenly believe that when they declare bankruptcy they are no longer responsible for repaying any of their debts. When you file for Chapter 7 bankruptcy, many debts such as credit card debts are indeed dissolved. However, there are many categories of debt not covered as well. This includes taxes, student loans, mortgages, alimony and child support. If you have substantial debt in such areas, declaring bankruptcy may not be the panacea you hoped it would be.

2. Bankruptcy is Very Bad For Your Credit Score

Nothing is worse for your credit rating than bankruptcy. People facing massive debt often overlook this issue, feeling that it’s too late for them to worry about their credit rating anyway. This, however, is not necessarily the case. If you choose an alternative to bankruptcy, such as arranging a payment plan with your creditors, your credit score can be salvaged. A Chapter 7 bankruptcy, meanwhile, is listed on your credit report for ten years.

3. You May Lose Some Valuable Possessions

When you file for bankruptcy, you must list all of your assets, such as home, property, financial investments such as stocks, vehicles and any valuable collections or possessions. In most cases, you will be allowed to keep your primary home and vehicle, but you may be forced to liquidate other assets. If you have any possessions that you don’t want to part with, you should think very carefully before filing for bankruptcy.

Considering Alternatives to Bankruptcy

We’ve looked at some of the reasons why it’s not a good idea to file bankruptcy without giving the matter plenty of thought. There are alternatives to this that should be considered. Some of these alternatives include:

  • Raising money to pay your debts by selling off assets.
  • Borrowing money from a family member.
  • Cash out your retirement benefits such as a 401K.
  • Negotiate a settlement with your creditors to see if they are¬†willing to accept less than the full amount owed.
  • Arrange a payment plan with your creditors that’s realistic for you.

None of these alternatives is ideal, and each has its own disadvantages. Getting out of debt is a challenging situation no matter what option you choose. The best solution depends on your particular circumstances. In some cases, bankruptcy is indeed the best way to eliminate your debts. You should, however, not rush into this without plenty of research. It’s a good idea to get professional advice from an attorney who is knowledgeable in this area. Otherwise you may find that you get some unpleasant surprises after filing bankruptcy.