What is Bankruptcy, Who Qualifies, and What Are Your Better Alternatives?

legal documents for bankruptcy

If just reading the word bankruptcy makes you feel anxious, you are not alone. Deciding to file for bankruptcy status is a terrifying decision, as it usually means that you do not feel like you have any other options when it comes to handling your debt. Believe it or not, however, there really are alternatives to bankruptcy, including debt settlement, that may be even better options for you in the end.

If you are looking to get a little debt relief, we’re here to help! Here is an introduction to the other financial options that may be better for your future.

Understanding the Ins and Outs of Bankruptcy

Before you know how to prevent bankruptcy and what options you have for doing so, it’s crucial to understand exactly what bankruptcy is. Essentially, filing for bankruptcy status is like pressing a restart button on your debt. The process is a legal proceeding in which a court will decide how both you and the company you owe will be treated fairly in a situation where you cannot pay your debts.

While it can be a huge breath of fresh air that you don’t have to worry about your wages being garnished or being harassed by collectors, your credit will take a huge hit. Even those with excellent credit scores will see it drop by at least 100 points when they file, and that bankruptcy status stays on your record for years, making it difficult for you to rent or purchase a home or vehicle or receive financial assistance in the future.

Bankruptcy Qualifications

Typically, you will file for either Chapter 7 or Chapter 13 bankruptcy. If you file for Chapter 7, you likely do not have the money to pay for your secured forms of debt and will have to allow the company to seize the assets that you offered up as collateral. To qualify, your debts must be more than half of your annual income, leaving you with no disposable income. Moreover, you should be able to show that there is no possible way for you to pay off your debt in less than five years.

If you do have the money to pay off the debt, based upon a certain legal calculation, then Chapter 13 may be your solution. Under this filing, you will have a new agreed-upon payment plan with your lender, and part of your debt may be absolved to ensure that you can pay off the rest of the amount. To qualify, you have to prove that you are up-to-date on all of your taxes, that you are stably employed, and that your income is high enough to make monthly payments.

Understand You Have Other Options

As you can see, it can be difficult to meet bankruptcy qualifications, and even if you are approved to file, the process can be long, stressful, and have a negative impact that lasts for way too long. Instead, you could consider some alternatives to bankruptcy.

Of course, your first strategy will likely be trying to earn some extra cash. It might take up some of your free time, but you will also be able to save up some money to at least make a dent in your debt. Consider doing something you are passionate about to help with the stress of the extra work. You could be a dog walker, sell crafts, be a freelance writer, book some photography sessions, or maybe even clean your neighbors’ homes or babysit their kids. When it comes to side jobs, the options are truly limitless, and they usually pay pretty well.

It would also help if you tried to revamp your personal finances altogether. Try coming up with a budget that you know you can stick to. Write down all of your income and record your expenses in order from most essential to least essential. Try eliminating 3-5 of your least essential expenses and then coming up with a significantly lower budget for the remaining non-essential expenses, such as eating at restaurants, recreational activities, subscription services, or shopping.

Ultimately, one of the best alternatives to bankruptcy is enrolling in a debt settlement program. Under this program, you will work with a debt relief consultant one-on-one. The specialist will look at all of your finances with you and help you determine what you can and can’t afford to pay. Then, he or she will work on your behalf to negotiate your debt with your lenders — without any legal proceedings necessary. After a few meetings, all you basically have to do is stick to your budget and make your payments, and you will be debt free in no time!

Get Trusted Advice from Experienced Professionals

When it comes to knowing how to prevent bankruptcy, take the time to meet with the experts who understand it the most. At Liberty Debt Relief, our team of highly experienced and trained professionals are happy to help you on your financial journey. We want to make sure that your finances stay as balanced as possible and that you have a thorough list of alternatives to bankruptcy that work with your situation. Contact us today for a free debt relief consultation.

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