Bankrupt – Where to Turn When You Can’t Pay Your Bills

The word ‘bankrupt’ refers to a person or business entity that has become financially insolvent or ruined. Individuals who cannot afford to pay their bills often turn to filing bankruptcy. This may or may not be the best way to get out of debt. Careful consideration should be given to all available debt relief options to determine which will inflict the least damage to your credit history.

Few people choose to be bankrupt. Not only is it worrisome and stressful, there is a social stigma attached. People perceive you differently. Some will pity you, while others will think you’re a failure. Chances are you will think you are a failure. It does not matter what others think, or even what you think of yourself. Instead, focus on determining which debt reduction plan is best and make a commitment to move forward.

While it is good to review the events that caused you to go bankrupt, dwelling on past mistakes will only magnify the situation. If you are facing bankruptcy because of unemployment or chronic illness there is no point in beating yourself up. If you are buried in credit card debt because of frivolous spending habits, it is time to get yourself in check.

A good place to become educated about money management is through credit counseling agencies. Most agencies charge a monthly fee. Non-profit agencies base fees using a sliding scale which calculates income and expenses to determine what you can afford to pay. Credit counseling can take place in person, by phone or online; making it a resource available to anyone who needs it.

Counselors might recommend debt consolidation or debt settlement. Consolidation loans are usually reserved for homeowners with home equity. Using their home as collateral, debtors secure a second mortgage loan or refinance to obtain cash. Funds are used to pay off creditors. Home equity loans are charged a lower interest rate than credit cards or unsecured loans. This option is a good choice for people with sufficient equity and credit worthiness.

Debt settlement requires negotiating with creditors to reduce interest rates or eliminate late fees and penalties. Depending on circumstances and amount owed, debt settlement companies can sometimes slash debt in half.

Debt settlement can be a good bankruptcy alternative, but can cause serious harm to credit scores. Bankrupt people usually don’t have exceptional credit histories, but it is important to understand the consequences of this debt reduction option.

A variety of options exist to settle debt. First, you can try to negotiate with creditors on your own. Put together a reasonable offer and determine how much you can afford to pay upfront. Money management experts recommend asking for a reduction of 50-percent of debt owed and offering at least 25-percent of that amount upfront.

For example, if you owe $15,000 in credit card debt, attempt to reduce that amount down to $7,500. Offer a lump sum payment of $1875 and extend the $5,625 balance over 18 months or less. If creditors agree, you can quickly eliminate debt and avoid going bankrupt.

If creditors are unwilling to negotiate, consider hiring a debt settlement company or attorney. Be certain to conduct research on the company before signing a contract. Unfortunately, there are many companies offering to eliminate the burden of debt who cannot deliver on their promise. Additionally, you will be providing highly-sensitive information. Be certain they can be trusted with it.

Simon Volkov is a published author and real estate investor residing in Orange County, California. Simon specializes in helping individuals who need to sell their real estate to avoid going bankrupt or foreclosure. He offers a comprehensive personal money management article library which provides debt elimination information and resources via his website at http://www.SimonVolkov.com.