Debt that is out of control is a financial pit that demands more and more of your money. Each payment is like digging a deeper hole that you may never come out of. People in deep enough financial holes often feel powerless as interest payments come knocking and bills grow bigger.
People caught in this type of situation often think of filing for bankruptcy. Bankruptcy is a necessary step for some people as it will bring relief and a way out of the hole. However, it has its shortcomings.
Even this enlightened society, it still carries a lot of stigmas. Bankruptcy filings are readily available and public information. Businesses and sometimes individuals that file for bankruptcy end up inside business magazines. Moreover, it can be expensive to file for bankruptcy.
Luckily, several alternatives can save you from making the pages of a business magazine. Depending on your situation, they could be reliable options to keep you afloat and even get your life back.
- Individual Voluntary Arrangements
Individual Voluntary Agreements or IVAs are legal agreements between you and your lenders. They can lower your repayments every month and also give you more time to pay off your loan. IVAs are often used by people who are struggling to meet the repayments of pre-existing debts.
Organizing for an IVA calls for finding an insolvency practitioner to set it up. They are ideally accountant and lawyers with specializations that help them deal with insolvency. It would be best if you worked well with your insolvency practitioner first to draft a proposal to take to your lenders.
This proposal is what should coax them into an agreement. Your goal is to get over three-quarters of your creditors to agree to the plan. If you do, the other lenders will have to abide by the terms and conditions of your agreement.
- Debt Consolidation Loans
Another route you could take before filing for bankruptcy is to take out a debt consolidation loan. This type of loan is designed to help you get rid of debt by using one jumbo loan to pay off the many smaller ones.
This solution is mostly used by people who believe that their financial difficulties are only short-term. Filing for bankruptcy in such cases would gravely damage your credit rating, and you would lose your assets and properties.
The best part about this solution is that you will be able to arrange a better payment plan for your new loan. You can arrange for smaller monthly payments that you can manage once you pay off your existing debts. This is because you are free to shop around for loan agreements that are available to you.
However, it is essential to note that with this alternative, you will most likely end up paying back more over the whole debt. However, it will not harm your credit score just as long as you keep up with the payments for the new loan.
The Key Point
Bankruptcy is expensive and carries a lot of stigmas. Moreover, agreements between creditors and debtors may not always be easy to attain. Before you seek this final resort, consider non-bankruptcy alternatives.