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Man holding his head in his hands as a judge bangs a gavel
Larry Alton
Freelance Writer

When someone finds themselves in a problematic financial situation, with overwhelming outstanding debts and no easy way to pay them off, they may consider filing for bankruptcy. There are different types of bankruptcy, with the most common types being Chapter 7 and Chapter 13, but all of them present a legal path forward for a person to discharge their debt

The problem is, bankruptcy is complicated and, strangely enough, expensive, and after going through it, it can have long-lasting consequences for your credit score. 

Accordingly, there are many alternatives to filing for bankruptcy that potential legal clients should consider before moving forward. 

Understand Your Motivations 

First, you need to understand your own motivations. For many people, the constant harassment of creditors is the main reason they want their debt discharged; if people are calling you on a nearly constant basis, or sending you threatening letters that fill you with anxiety, it can be overwhelming. However, there are strict laws in place that dictate what debt collectors can and can’t do—and if your debt collectors are harassing you, you can often dissuade them by asking them to stop. If you ask them to discontinue in writing, and the harassment continues, you may be able to take legal action against them. 

Harassment includes, but is not limited to, repetitious phone calls, obscene language, threats of harm or violence, and publicizing or threatening to publicize your name. 

Negotiate With Creditors 

If you have too much debt, but you’re working hard to pay it off, you may be able to negotiate with your creditors. Sometimes, a simple phone call to the credit card company can get them to lower your rate, or restructure your debt payment plan in a way that makes it more affordable. In other cases, you may be able to consolidate your debts in an affordable way; for example, you can transfer your credit card debts to a card with a lower interest rate, making it more manageable. 

Get Help From a Credit Counseling Agency 

In some situations, you may be able to qualify for credit counseling. Credit counseling services provide guidance to individuals who need assistance or advice with their personal finances and debt management. Some counseling services even negotiate with creditors on your behalf, sparing you the effort of negotiating with creditors directly. 

This is a valuable option for people with limited financial knowledge, or those who don’t have the power or confidence to seek change entirely by themselves. 

Get Help From Friends and Family Members

In some situations, you may be able to get help from friends and family members. For example, if you’re staring at a debt of $30,000 with a 24 percent interest rate, and you’re only making the minimum monthly payments, you may realize that you’ll never be able to fully pay this principal off. However, if you borrow $10,000 at a much lower interest rate from your friends, you may be able to get to a more manageable place. Of course, borrowing from friends and family members can also be problematic for your personal relationships. 

Sell Some Assets

In some cases, you can take control of your debt by selling some of your assets. Selling your car, your old electronics, or selling your home and moving somewhere smaller can free up thousands of dollars that you can use to pay down your debt. However, be careful when liquidating your retirement savings; these funds may be protected. 

Take Charge of Your Finances

Once you’ve consolidated or negotiated some of your debt, you may have an opportunity to take greater control of your finances. Sometimes, a combination of strict budgeting, financial sacrifices, and extra work via side gigs is enough to help you get more control over your financial life. 

When to File for Bankruptcy 

If a person has tried all of the above options, but still feels overwhelmed with debt, they may strongly consider filing for bankruptcy. At this point, they should be talking to their lawyer about their options. In Chapter 13 bankruptcy, they’ll work with creditors to come up with a payment plan to pay off all debts within a period of 3 to 5 years. In Chapter 7 bankruptcy, all their debts will be discharged (with only a few exceptions), and they may need to sell much of their personal property to cover whatever costs they can. 

Bankruptcy isn’t a “get out of jail free” card, nor should it be treated as the go-to option for someone struggling with debt. It’s a last-ditch option and should be treated this way. If you or a loved one is considering bankruptcy, or if you have a client who’s considering bankruptcy, they should know about these more pleasant, less consequential alternatives—and hopefully, use them to improve their situation.

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