credit card problems

 


Bankruptcy Alternative


Is there such a thing as a bankruptcy alternative? The, short and simple answer to the question is a emphatic, "Yes!" with qualification. Substitutes for debt repudiation are varied and must be researched in depth.  Thus, enabling the debtor, to determine which application may fit the precise situation that they are in. In fact some of the so called "substitutes" may even place the debtor in a more precarious position or just delay what may be an inevitable end. Below are a few solutions that debtors may use to help avoid formal debt insolvency.

Debt Settlement with creditors

This is one method that is sought by many debtor's prior to taking the final step to filing for a formal declaration of insolvency. In certain cases this is a viable substitute for reduction of debt. However,  studies  have shown that many of the debtors must still seek formal debt repudiation when using this particular method.

Very few debtors when they pursue this avenue are unaware of the hidden consequences. One of the  major consequences of  debt settlement, with a creditor, is that the, Internal Revenue Service, can tax the amount of  your debt settlement as taxable income. Every creditor, by law, must report the amount of  the reduction to the IRS. Also the creditor will send you a copy of the 1099 that you must report on your personal taxes. In other words if you settled with a creditor to reduce your debt by say 35% or a total of $1000. The IRS considers that is the same thing as writing you a check for cash. Then that $1000 at the end of the tax year becomes taxable income.

Debt Consolidation

Perhaps one of the most favored alternate routes for trying to avoid complete financial insolvency is a debt consolidation loan. As noted above there may will be hidden consequences when this method is applied. One consequence that must be considered is that the loan will actually reduce your debt and lower your monthly payments.

Even though a debt consolidation loan may lower your monthly payments for a set period of time in the long run you may find that are actually paying more interest to the lending company than you would have to the credit card company. In addition to that hidden consequence many debt consolidation loans require a "balloon payment" on the back end of the payment. Which means that the debtor will have to come up with a large sum of money at the end of the debt consolidation loan. Thus ending up having to borrow more money.

Yes! There are bankruptcy alternative, but they may well cause more problems than when the debtor started.