Other Alternatives For Filing Bankruptcy
In legal terms, bankruptcy is the lack of ability to pay off all an individual’s debt. Filing for bankruptcy essentially gives the individual new lease of life. Bankruptcy relieves the debtor of his current debts while giving him the chance to repay them in a more systematic way, wherein he pays off only those debts he can afford to settle. Basically, filing bankruptcy also shields the debtor from lawsuits since creditors cannot take any legal action against him.
Personal bankruptcy has two kinds: chapter 7 and chapter 13 bankruptcy. The first kind is discharging all the debts through the assistance of a court. In order to do so, the debtor has to give up a property. The debtor can also include anything that he has paid off. Unfortunately for the debtor, not all debts are discharged under this way.
The other kind of bankruptcy helps you get rid of debt through a court approved plan of repayments. The repayment plan is usually in a stretch of 3-5 years, giving the debtor more time to repay his debts in a more systematic manner. Any property will be kept by the debtor, and he has the luxury of paying off only what he can afford. The creditor usually accepts a smaller amount due to this set-up.
Filing for bankruptcy however has its downsides. Adverse credit problems mean that the debtor has a bad reputation in as far as his credit history is concerned. This means that he can have troubles of getting any form of credit during a substantial stretch of time. Every time the debtor applies for, say a personal loan, he will be rejected, or could be given unusually high interest rates.
Because bankruptcy can have its disadvantages, one can consider other alternatives such as debt consolidation. In this option, an individual can pool his existing debts and form them into a single loan coupled with low monthly repayment scheme. The payments are lower because the loan is stretched over a lengthier period of time.
Another good alternative is IVA, which helps the debtor to seal an agreement with his creditor. In this agreement, both parties will agree that the debtor will have to pay off a particular amount in a 60 month period, or even less.
As it is, bankruptcy should be taken as the final option among cash-starved individuals because of its long tem effects to the debtor.