Bankruptcy Alternatives Blog

Debt Consolidation Loan Calculator

For most people with debt problems, the first alternative to bankruptcy they consider is a debt consolidation loan.  That makes sense, because with a debt consolidation loan you can pay off all of your debts and only have to worry about one loan payment each month.  In most cases your new loan will have a lower interest rate than what you were paying on all of your high interest credit cards, so you save money.

But do you qualify for a loan?  That will depend on a number of factors, including your income, and the amount of your debt.  To find out if you qualify, use a debt consolidation loan calculator to calculate your loan payments.  You enter the amount you owe now, and the interest rate you are paying, and you enter the amount you will be borrowing, and the new interest rate you hope to get, and you can instantly see how much you will save.

It pays to be prepared before you go to the bank, because if you won’t qualify you need to take steps to increase your chances of qualifying for a loan.  You may need to pay off one or more of your credit cards first, or take steps to increase your income.

Either way, you want to know whether or not you can afford the loan before you apply, and that’s why it’s essential that you use a debt consolidation loan calculator to calculate your payments first.

Should Bankruptcy Be Your Last Option?

People sometimes go through extreme economic turmoil. They find themselves surrounded with huge amount of debts and fail to handle the outstanding amounts. During such a financial upheaval, most people take up bankruptcy as the best option to get release from their debt afflictions. This helps them to start with fresh endeavour to restore a sound financial condition.

Filing bankruptcy is a very complicated process. There are certain new laws which has made filing bankruptcy even more intricate. According to the new law, filing for chapter 7 bankruptcy is only possible if you have no monthly income. When you file for chapter 7 bankruptcy, the court seizes some of your assets in order to sell it and pay back your debts. These seized assets are called non-exempt property. The rest of the property which you are left with you are called exempt property.

If you have a minimum amount of income, then you are not eligible for the chapter 7 bankruptcy. Instead you will have to file it under the chapter 13. In chapter13, you will not be required to surrender your property to the court to repay your debts. The reason is that, chapter 13 offers a repayment plan suggesting how to repay your debts to your creditors easily. You can utilize your monthly income and other monetary resources to pay off your debts.

Filing for bankruptcy seems to be the easiest way to get relief from debt clutches. Nevertheless, there are certain drawbacks that you can experience after filing for bankruptcy. It will affect your credit report adversely which will force you into several years of difficulties. Owing to this negative credit remarks you may not receive loans or credit cards further. Hence, filing bankruptcy should be the last option to get relief from prevailing debts.

Alternatives to Bankruptcy

If you want to avoid filing for bankruptcy and yet want to repay your debts, there are some alternatives. You can opt for a debt settlement program. As soon as you enroll with a debt settlement company, they negotiate the debt amount including the interest rate with your creditors on your behalf. You are then only required to pay the reduced amount to the settlement company and they will disburse the amount to your creditors.

Debt consolidation is another way to rule out your debts. When you enroll with a debt settlement company, you get a single loan so as to recompense your all other debts. Both of the above debt relief options will bear a negative influence in your credit report. However, it will be still better than the detrimental and harmful effects of filing bankruptcy.

Bankruptcy Alternatives During an Economic Crisis

The “credit crunch” of 2008 has lead to more government bailouts and a deeper recession in 2009; many experts are now even predicting a depression. What impact does this have on your bankruptcy alternatives?

Lots.

If your home equity continues to increase, and if you are getting lots of hours at work, you probably qualify for a debt consolidation loan. However, during a recession when your house is declining in value and foreclosures are on the rise, and when your income is going down, a debt consolidation loan is probably neither affordable or something you can qualify for until the economy bounces back.

If you have a good job and good income, Americans could file a Chapter 13 Wage Earner Plan, and Canadians could file a consumer proposal. Under these legal arrangements you repay a portion of your debts, and avoid having to file bankruptcy. However, to repay a portion of your debts you need an income, and if you are unemployed or working reduced hours, you may not have the income to do a Chapter 13 filing or a consumer proposal.

In other words, the recession has made it more difficult to take advantage of the bankruptcy alternatives that worked so well in the past.

What can you do? Cut your expenses, make a budget, find a part time job, sell any assets you have to raise cash, and ride out the storm. The economy will eventually improve; the trick is to keep your head above water long enough to allow you to benefit when the better times return.

What are my bankruptcy alternatives?

As the North American economy continues to weaken, and every day we read news of bailouts, we get even more worried about our own personal financial situation. What can we do? If you are experiencing money problems and you think that personal bankruptcy is your only alternative, start with our five step program to avoid bankruptcy.

First, make a family budget. If you don’t know where your money is going, you can’t decide what spending to cut to free up cash to repay your debts on your own. Read our special report on budgeting for more information, and for some free tools to help you budget.

If your budget shows that you can afford it, your next step may be to try to get a debt consolidation loan. With a debt consolidation loan you consolidate your debts and make one monthly payment, at a lower interest rate than you are paying now. You need good credit to qualify.

If you don’t have good credit, your next option would be to consider credit counseling through a non-profit credit counsellor about a debt management plan. They may be able to work out a plan where you repay your debts over a longer period of time, at a reduced or zero interest rate.

If that isn’t affordable, a legal procedure may be necessary. In the United States you could file a Chapter 13 Wage Earner Plan. In Canada you could consider a consumer proposal. Either way, it may be possible to negotiate a legal settlement where you pay less than the full amount owing.

If even that is not affordable then, and only then, should you consider personal bankruptcy. Bankruptcy is a last resort, only to be considered if all other bankruptcy alternatives have been considered. You have options, so consider them wisely, do your research, and then make the decision that is best for you and your family.

What are my bankruptcy alternatives if I own a house?

In 2008 in North America the real estate market has fallen significantly. Over 1 million homes in the United States are currently under foreclosure, and the numbers are falling in Canada as well. What can you do if you own a house, but can’t afford to pay the mortgage an all of your other debts?

First, you could sell your house. If you can sell it and get enough money to repay the mortgage, that might be your best bankruptcy alternative. Sell now, before your house falls even more.

Second, you could attempt to negotiate with your mortgage lender. They do not want to foreclose on your house, so they may be willing to extend your mortgage or give you more flexible payment options. You will not know unless you ask.

Third, you could attempt to get a debt consolidation loan to deal with all of your other debts, which may give you enough free cash to stay up to date with your mortgage payments. It may even be possible to get a mortgage debt consolidation loan to reduce the interest you are paying on your mortgage.

Fourth, you could file a consumer proposal or Chapter 13 Wage Earner Plan. Again, this deals with your other debts, not your mortgage, but it may give you enough financial flexibility to keep up with your mortgage payments.

Finally, if all else fails, it may be necessary to file personal bankruptcy. Every situation is different, so you will need to research to determine if you will lose your house if you file bankruptcy; the answer will depend on the value of your house, and the amount you owe on the mortgage, and where you live.

As you can see, you have bankruptcy alternatives when you own a home. To find out more, if you live in Canada, contact a bankruptcy trustee, or if you live in the United States, contact a bankruptcy attorney.

What if I Just Stop Paying My Debts? Is Not Paying a Good Bankruptcy Alternative?

At some point in almost everyone’s life we get to the point where we just through up our hands and say “Enough: My debts are too high, so I’m just going to stop paying!”

For some people that may be the correct option, but it does have one significant danger: If you stop paying, it is possible that your creditors will take you to court, sue you, and attempt to garnishee your wages. If you own property, like a car or a house, they could attempt to put a lien on your property, seize it, and sell it to repay your debt.

If you currently own no property or have no wages, you are “creditor proof”, so doing nothing may be an option. If you get a pension or welfare, it is unlikely that those payments can be garnisheed, so there may be little risk of a garnishment. You could open a new bank account at a new bank that is not known to your creditors, and continue on until your situation changes.

However, if you do have a job, doing nothing is probably not the correct option for you. You need to take action. Try contacting your creditors and working out a repayment plan. If you need help, a credit counselor can meet with to determine if a debt management plan is the correct solution for you. If you still have good credit, a debt consolidation loan is another possible option.

If you live in the United States, a Chapter 13 Wage Earner Plan is a good personal bankruptcy alternative. In Canada, a consumer proposal is an excellent solution in many cases.

The point to remember is that doing nothing may be an option, but there are many other bankruptcy alternatives, so research your options and decide on the option that’s best for you.

Should I borrow to invest, or borrow to pay off debts to avoid bankruptcy?

In North America, the interest on money you borrow for investment purposes is tax deductible. The interest on money you borrow to go on vacation, or to purchase any good for personal use, is generally not tax deductible.

So if you have a lot of debts, but still have some credit, does it make sense to borrow money, invest it, and hope to earn enough to repay your other debts?

In some respects this strategy makes sense, because the interest on the money you borrow to invest is tax deductible, so you it may be possible to generate positive returns.

However, as the experts at investment newsletter www.buy-high-sell-higher.com point out, the number one goal of any investment is not to make money, but even more important it is to NOT lose any money. Because you are attempting to earn money to repay debts, and therefore avoid bankruptcy, you may be taking more risks than you should, and that is not a good idea.

Our advice? If you have debt problems, borrowing even more money to invest in the hopes that you will earn more money to far too risky a strategy. We do not recommend it.

A better strategy would be to make a personal budget, cut your expenses, and if necessary consider debt consolidation and other more practical options.