Bankruptcy filings are steadily declining across the nation; in fact, 2013 saw a 12.6% decrease in individual bankruptcies over the previous year. The 2014 numbers reflect only about three bankruptcies for every 1,000 people in the country, the lowest rate since 1990. While these numbers reflect the dropping unemployment rate, they also may indicate more people are choosing alternatives to bankruptcy. Bankruptcy may be the right decision for you, but before committing to it, consider the following options.
How much debt do you currently carry? If it is a matter of being a few months behind on your credit card payments, credit counseling may be all you need. Credit counseling agencies help you analyze your current spending habits and rearrange them so that you have the money to pay your credit accounts. If you call your creditors and tell them you are working with a credit counselor, they are likely to work with you. Ultimately, they would rather wait a few months while you make a good faith effort to straighten out your affairs than spend time and money to take you to court.
Debt Management Plan
A debt management plan, or DMP, is also available through a credit counseling agency. A step up from simply rearranging your budget, it is a good choice if you owe a lot of money, are significantly behind, and have the income to make regular payments. This plan compiles all your credit accounts into one, on which you make a reasonable monthly payment until your debts are paid in full. Again, creditors tend to like DMPs because it means they will be getting regular payments. You will make your payments through the credit counseling agency, which will charge a small fee. However, your credit lines will be closed and you will not be able to open new accounts until your plan is complete.
A credit counseling agency offers workshops on such topics as living within your means, saving money, and learning to use credit wisely. These workshops help you avoid future financial mistakes.
Debt consolidation is a final alternative to bankruptcy, but it is not for everyone. It involves taking out a loan large enough to pay off all your credit accounts--and then closing them. Like a DMP, you then pay off the loan (however, your loan will accrue interest and finance charges, unlike a DMP). The success of debt consolidation lies completely with your self-control, as there is no credit counselor to manage the plan. You will have to restructure your spending on your own and resist the temptation to open any new accounts. Unfortunately, many people fall into worse debt when financial crises occur for which they are unprepared. If you choose to use this option, it's a good idea to have a trusted friend or family member hold you accountable.
Will you be one of the new statistics--avoiding bankruptcy by using an alternative? Make an appointment for a free consultation with a bankruptcy attorney like Thomas A Blake to discuss your circumstances and get advice about the best financial decision for you.