Bankruptcy isn’t the answer for everyone. You may have minimal debt, or you may have only non-dischargeable debt, in which case another available option is worth trying first. Medical debt is one of the most negotiable debts. Speak with the medical provider to find out what they would accept as payment in full before just writing it off as a debt that you will never be able to pay. If you are behind on a mortgage but you don’t have much other debt, it is worth trying a mortgage modification first. Many times, a mortgage lender is willing to work with you to find a solution to helping you pay off the arrears. The IRS and the state tax departments are also known for allowing people to assume reasonable payment plans to pay off their tax debt. It is worth speaking with these types of creditors before deciding to file a bankruptcy.
There are also many debt settlement and debt consolidation programs out there that can assist you in creating a budget and determining how much you can actually pay your creditors each month. What you should be careful of in these cases is how much you are paying the programs to assist you. If you are paying them a substantial amount for 6 months to a year before they even start paying your creditors, who is paying your creditors during that time? You should always pay your creditors something, even if it is minimal. When you stop making payments altogether is when creditors start being aggressive and will consider filing a lawsuit against you to obtain a judgment.
Some people will also look to borrow from family or friends, or even withdraw from a retirement account to pay back certain debt. Depending on your family and friends, this may not be a better creditor to owe; it becomes more personal and can strain personal relationships. I always cringe when people come in to file a bankruptcy petition because they have spent all of their retirement to pay back debt. If they had come to me a year before, when they saw the writing on the wall, I would have told them not to touch their retirement account, as they are usually 100% exempt (or protected) in bankruptcy. If you know that your debt may be unmanageable, and bankruptcy might result, don’t dip into your retirement accounts – save that money for when you truly need it! Mallory Powers is a co-contributor to this press release.