Alternatives to Bankruptcy
There are some alternatives to bankruptcy so don???t be in too much of a rush to head in that direction without taking a look at them. You will need to take some time to educate yourself on the different options out there.
You don't want to try one that will end up placing you in an even more stressful and difficult financial situation than the one you are already in. One alternative to consider is debt settlement with your creditors. This is often a final step before considering bankruptcy.
This is a good way to reduce the amount of debt you owe but you need to get it in writing from each creditor what the terms will be and they have to agree not to take further action against you. There are some hidden consequences to this option that you need to be aware of as well. The IRS has the option of applying taxes to the amount of money your debt was reduced by.
By law such creditors have to provide the IRS with the information relating to any such agreements. Each creditor will send you a 1099 form that you have to claim as income on your tax return. For example if you settle with a creditor for 35% of the amount which equals ,000 then the IRS will consider this to be taxable income.
A better alternative to consider is debt consolidation. There are some consequences involved here as well. The consolidation will lower the amount of your monthly payments but you will pay more over the life of the loan.
Be very careful of any such debt consolidation loan that includes a high balloon payment at the end of it. This means that you will have to come up with a hefty amount of money at a set period in the future. This often results in the individual having to borrow more money from another source.