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Secured Debt, Unsecured Debt, and Priority Debt Explained.

Preparing For A Bankruptcy Consultation

Alternatives to Filing For Bankruptcy – How To Avoid Filing For Bankruptcy

Alternatives to Filing For Bankruptcy – How To Avoid Filing For Bankruptcy
©2019, Melissa C. Marsh.
Written: 7/6/2008  
By: Melissa C. Marsh

Liquidate Assets to Pay Off Credit Card Debt

For consumers who own property, multiple vehicles, a boat, art work, or jewelry, this may be a suitable debt relief solution for paying off debt.

Eliminate Unnecessary Expenses and Get a Second Job

Even though your debt may seem overwhelming at the moment, taking a long hard look at both your assets above and your monthly expenses, may enable you to find some extra cash. For example, are you paying a telephone company over $100 per month for your phone bill and a separate company $100 per month for cable? By consolidating the two and eliminating the premium cable stations you should be able to reduce the cost for telephone, dsl, and cable to $100 per month.

Once you have eliminated all of the non-necessities from your monthly budget, you need to look at how you can increase your income. Ask your employer for additional hours. If you are self-employed, get a second job!

Try To Directly Negotiate With Your Creditors

Most creditors would rather be paid a little, rather than nothing at all. Let your creditors know your financial hardship and your willingness to pay off your debt. Ask them to reduce your monthly payment and/or decrease your interest rate. Ask if they have a hardship program. Once you have thoroughly examined your assets, expenses, and present debt load and determined what can be paid per month and how long it will take to pay off your debt, you can effectively explain your situation to present creditors and negotiate.

Look into Credit Card Balance Transfers, But Exercise Caution

If you are unsuccessful at negotiating a reduced interest rate and/or monthly payment, then you may want to consider credit card balance transfers as a temporary means to lower the interest rates on your outstanding balances. But be careful. You must look into the terms and conditions, such as how long you will enjoy the reduced interest rate, the requirements for maintaining the reduced interest rate, and any hidden fees. This option should only be used if you believe it is possible to pay of f your debt within 5 years after selling unnecessary assets, reducing your monthly expenses, and increasing your income.

Credit Counseling as a form of Credit Card Debt Relief

Consumer credit counseling is an alternative to filing for bankruptcy and involves the retention of a professional debt counselor who will assess your debts, monthly expenses, and income. Using this information, the debt counselor will try to work out a 4 to 5 year debt repayment plan, which will be sent to all of your creditors. If all of your creditors agree to the plan, you will then make one payment per month to the credit counselor who in turn will pay off your individual creditors in accordance with your 4 to 5 year debt repayment plan.

Although some credit counselors can negotiate better payment terms than you can on your own, in most cases a credit counselor cannot do anything you cannot do for yourself. You personally can contact each of your creditors and work out a 4 to 5 year repayment plan. However, if you are uncomfortable negotiating yourself or lack the discipline to write a check to each of your creditors on time each month, then using a well respected credit counseling agency may be a good option. Before selecting a particular credit counseling agency, be sure to check their history of complaints with the Better Business Bureau.

Debt Relief with a Chapter 7 or Chapter 13 Bankruptcy

Filing for Chapter 7 Bankruptcy should be avoided, if possible, but may be appropriate where the debtor: (1) absolutely cannot under any circumstances meet his or her debt obligations as evidenced by a debt to annual income ratio of at least 40%, and (2) failed in his or her attempts to negotiate reduced minimum payments and/or interest rate with his or her creditors.

In a Chapter 7 bankruptcy, a debtor with an adjusted gross income of less than $60,000 per year (in California)will have their non-exempt assets (if any) sold by a bankruptcy trustee as full satisfaction of the debtor’s outstanding debt.

If the debtor does not meet the income qualifications for a Chapter 7 Bankruptcy, she or her may still qualify for the Chapter 13 Plan Bankruptcy. By far this option should be avoided if at all possible because it has all the negative credit implications of a Chapter 7 bankruptcy filing, even though the debtor is still required to pay back a substantial portion of the debt off under a five (5) year repayment plan.

Using your Home Equity for Credit Card Debt Relief

A home equity loan may be an appropriate option for consumers with high credit card debt. The interest rate is normally substantially lower than the interest charged by a credit card company, and the interest paid on the home mortgage can be used as a write off on your income taxes. Again, extreme caution should be exercised before using this option. Credit card debt is unsecured. You don’t pay, they can’t take your home away. But, if your refinance to pay off the credit card companies and later cannot make your monthly mortgage payment, then you could lose your home.

Liquidating your IRA and Borrowing against a 401(k) to Pay Off Credit Card Debt

An individual should never liquidate their IRA or borrow against their 401(k). Your money in an IRA or 401(k) grows tax free and is compounding interest. If withdraw funds from such a retirement account and are under age 59 ˝ , then you will have to pay not only the state and federal income taxes on the money withdrawn (about 30%), but also a penalty for early withdrawal (10%). In addition, assets in an IRA, 401(k), and similar retirement accounts cannot and will not be liquidated in a bankruptcy.

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© Copyright 1999-2019 Melissa C. Marsh. All Rights Reserved