Making the decision to file for bankruptcy protection can be difficult, and legal proceedings should always be a last resort. However, when individuals are facing mounting debt that they are unable to pay down, as well as an inability to meet their day-to-day needs, doing so may seem like the only option. Before starting the legal process, however, there are several other steps borrowers should take to make sure bankruptcy is the best choice for their circumstances.
First, individuals should speak with a credit counselor. Consumers who are facing tens of thousands in credit card debt, medical bills and other balances may not realize that making lifestyle and spending changes can help them tackle their balances. For example, getting a part-time job, downsizing to a smaller home and vehicle, and eliminating discretionary spending can help adults make significant strides in reducing their balances.
If budgeting and lifestyle alterations are not enough to eliminate balances, consumers may also have the option to enroll in a debt consolidation plan. These agreements allow individuals to take out a single loan to pay off all their balances. They will then have to repay the loan over time and may benefit by having a single payment to be responsible for. This can not only be less stressful than attempting to keep track of various balances, but may also be an affordable option because the loan will offer a single lower rate. Additionally, many consumers may be hesitant to ask family for assistance. However, taking out a loan from family members to cover debt payments may allow them to pay off balances and be subject to more favorable interest rates or terms.
Once these options have been exhausted, borrowers should consider consulting a bankruptcy attorney, who will review their finances and determine if legal proceedings are a viable option. States have different rules regarding bankruptcy eligibility, and working with an attorney can help borrowers learn about what to expect, the documentation requirements they face and how to go about the process.
If bankruptcy is the only option available, individuals should understand the different types they may file for and which will help them exit proceedings more quickly. Being informed may give consumers more control over their options and help them start rebuilding their lives post-bankruptcy.