Bankruptcy is a useful tool for getting out of debt, but it should also be treated as a last resort. It will have a significant impact on your finances, including your ability to qualify for a loan, for years to come. Filing for bankruptcy can even affect your job prospects with employers who perform credit checks, or prevent you from working in some industries outright.
If you need debt help but bankruptcy is not right for you, consider these three bankruptcy alternatives.
#1 Debt Consolidation
A debt consolidation loan is a way to bundle up all of your unsecured debts at a lower interest rate, easing up the demands on your budget and giving you one simple monthly payment to worry about. The downside is that qualifying for a loan can be a challenge for debtors who need it, as their credit scores are likely affected by all the debt they’re carrying. It’s important to consider your debt consolidation options and ask if they’re right for you. Will you be tempted to use your credit card again if you’ve transferred the balance? You can wind up doubling your debt that way.
#2 Selling Personal Assets & Savings
Selling assets or using savings to get out of debt can leave you in a vulnerable position. Given that registered retirement savings contributed more than 12 months before you file for bankruptcy are exempt, if you’re thinking about liquidating to get out of debt, do some more digging into other alternatives. But in some cases, savings do not generate as much interest as debt, and you can reduce the costs of interest charges by quickly paying off high-interest loans.
#3 Consumer Proposal
Licensed insolvency trustees have increasingly been turning to the consumer proposal to help deal with debt. Created in the 1990s as a way to help people who were still earning money to get out of large debts without having to lose their assets, it’s become a popular debt settlement option for several reasons.
First, you don’t have to give up any of your assets. Your property, home, and savings are protected, which sets you up for more success and financial stability in the long-run. Second, it halts interest rates and collection actions. That gives you breathing room to catch up.
Instead of giving up assets, a licensed insolvency trustee proposes a monthly payment to your creditors with no interest. Usually this includes a significant reduction in how much you owe. Payments stay the same, even if your income goes up. It’s a reliable tool for getting out of bankruptcy.
When Bankruptcy Won’t Get You Out of Debt
In some cases, the debts that are really keeping you down won’t be discharged by bankruptcy either. The most common example of this is student loan debt, which won’t automatically be discharged by bankruptcy proceedings. Depending on where you live, you often need to have graduated a certain number of years ago.
If your debts aren’t covered by bankruptcy proceedings, look to alternatives that can help you rearrange your finances and meet your obligations.