Are There Alternatives to Bankruptcy?
Some things that you might consider doing as an alternative to filing bankruptcy would be to sell assets that you may have to pay your debts.
Also, you might want to try to negotiate with your creditors to see if you can either reduce the balance owed or renegotiate your payment amounts. Sometimes it is possible to take out a home-equity loan if you have real estate with equity, or alternatively, you may be judgment proof and elect to do nothing.
Will Your Creditors Write Off the Debt?
Sometimes, if you simply don’t pay, the creditors will write off the debt and all you’ll need to worry about at that point would be the tax liability. When a debt is forgiven, creditors will issue a 1099 form to the IRS. When this happens, you will find out that the IRS treats debts that are written off as if it were income to you although you didn’t get any money. This, of course, creates sometimes sizable tax debts. You will be required to add the amount was written off to your income in figuring your taxes. (remember, this is general information and not legal or tax advice!)
The Big Decision to File Bankruptcy
In making the decision to file bankruptcy or not, many people, unfortunately, are so emotionally adverse to the idea of filing bankruptcy, and burdened by feelings of guilt or shame, that they feel that they must exhaust all possible alternative measures before a bankruptcy would be properly considered. These people continue to make payments that never reduce the balance on their debt, keeping them a slave to their debt for years. Sometimes they will take out second mortgages which cannot be discharged in order to pay credit card which can be discharged in bankruptcy. Other mistakes people frequent make to avoid filing bankruptcy include borrowing against their retirement plans. Sometimes they take out loans from friends and relatives which they do not want to avoid repaying to pay unsecured debts which they should be discharging in bankruptcy. Oftentimes they consider taking second jobs at the expense of their family relationships.
Consider Your Health and Well Being
It is important to consider the strain that your financial affairs place on your health, marriage, and family relationships. Of course, bankruptcy is a serious step it is not taken lightly but this does not mean that you need to wait until you’ve lost everything before you consider filing bankruptcy. The fact is that if you have so much debt you cannot reasonably re-pay it in the next couple of years then bankruptcy is probably going to be a good choice for you.