Posts Tagged ‘Bankruptcy Alternatives’

3 Legal Ways To Avoid Bankruptcy

When debts and finances become unmanageable and things seem to be hopeless, it does not mean that going bankrupt is the only option available to you. Before you file a petition in this regard, you are strongly recommended to sit down with a calm mind and work on the various alternatives to avoid bankruptcy. There are plenty of options available out there. Make sure you review each and every option thoroughly, as it will help you to make an informed decision. Following is a brief overview on three most common alternatives that debtors often use.

Debt Consolidation

Debt consolidation is a process, where all your debts are merged into one and you are required to make a single consolidated payment every month. In general, you have to take a big loan and use the money thus borrowed to pay off all your existing debts. This new loan usually has a much longer repayment period, which eventually reduces the monthly payments to a significantly very low amount. The interest rates on this loan however are usually much higher than you were already paying, but you may also qualify for a low rate provided you put some assets or properties as collateral, such as your car or home. Many agencies these days are offering attractive debt consolidation services to help consumers to avoid bankruptcy. You can consider using those services. But, you have to be careful with the selection of the service provider; make sure it is a reputable agency that charges a very reasonable fee.

Debt Restructuring

When it comes to business bankruptcy, debt restructuring plans can be used a great alternative. If your company or business entity is facing financial distress or cash flow problems, you may consider using this option. As per this process, you may be able to negotiate better, more favorable terms for the payment of delinquent debts in a way that should allow you to continue your business operations by restoring or improving liquidity. Out-of court restructurings have become very common these days, which is often referred to as workouts. The number of people who prefer to use this option to avoid bankruptcy has tremendously increased in the last few years. The good thing is that the process does not cost anything additional in terms of money, but you must be ready to invest a significant amount of time and effort to let this option work in your case. As part of the process, you may have to attend several meetings with tax authorities, vendors, creditors, and bankers. This option generally involves an extended loan term and a reduction in debt.

Negotiation With Creditors

Creditors are the worst sufferers when debtors go bankrupt; they have to suffer huge losses because of this. That is the reason they are often ready to negotiate a better agreement for the repayment. They may even be willing to write off certain portion of your debt straightaway, reduce the rate of interest to a very low figure, waive off the penalty charges, and increase the loan term. Debtors often hesitate to talk to their creditors when they are unable to make the repayment in time. In reality, your lenders should be the first persons you have to contact when you are in financial trouble. Prepare a proposal and talk to them about your specific situation. In most cases, they will definitely be willing to work out an alternative.

Always remember, you have to be financially disciplined to let all these options work for you. Self money management is the key factor if you seriously want to avoid bankruptcy.

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What are the pros and cons of debt consolidation?