How to Avoid Bankruptcy

Posted on February 26th, 2009 by Marck

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Like many people in dire financial straits, you’re an honest debtor willing to pay whatever you owe in bills and other debts. The problem is that you can’t pay them without risking bankruptcy (Tips on how to file for bankruptcy), which is what you’re trying to avoid in the first place. Here are some ways that you can settle your debts without risking personal bankruptcy:

What Is Personal Bankruptcy?

Personal bankruptcy is a legal measure where a person declares himself or herself incapable of paying a debt, and he or she has to surrender assets or other properties to pay for that debt. There are two kinds of personal bankruptcy laws applied in the United States

Chapter 7 is also called a “no-asset” personal bankruptcy procedure. In Chapter 7, a trustee collects assets of the debtor. The trustee converts the assets to cash, and then distributes the sum to cover what the debtor owes to creditors.
Chapter 13 is a bankruptcy procedure for people with a regular and stable source of income. The debtor still retains the rights to the assets in his or her estate, although the debt should be settled within a set period of time.

Bankruptcy Alternatives

Bankruptcy is very inconvenient, distressing, and even embarrassing. People in debt try to avoid it as much as possible, and look for ways to settle a debt without filing bankruptcy forms. Here are some alternatives to filing either Chapter 7 or Chapter 13 bankruptcy:

Settlements. Should the creditor decide to settle the matter in court or have a lawyer draft a settlement, read the document carefully. Remember that you’re not trying to stiff your creditor out of the debt that you’re supposed to pay, but the rate should not be too high that it becomes unfair for you to pay it.
Debt counseling and consolidated loans. Debt counseling is a remedy where you and the creditor agree to fair terms on how you can settle what you owe. Instead of a series of different payments and bills, a debt agency will combine your all your credit into one monthly payment with a reduced rate and interest. You’ll still have a very negative credit rating after counseling and consolidation, but it’s better than filing bankruptcy.

Remember that bankruptcy alternatives do not apply for everyone; in some cases, the alternatives stall the bankruptcy and buy you enough time to keep your finances in check. If you do qualify for bankruptcy alternatives or if they are offered to you, use the time to whip your finances into shape. You may need to sell some of your properties, save on some expenses, or ask for help from friends and family.

At a time of financial difficulties and economic crisis, it’s very difficult to keep your finances stable and stretch your income. With these tips, you can help yourself straighten out your finances, and get yourself out of your financial rut.