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Are there alternatives to bankruptcy?

Many debtors in North Carolina may be hesitant to file for bankruptcy because they are afraid of losing everything. In reality, the purpose of bankruptcy is to help you make a fresh start and break free of crippling debt.

However, there are pros and cons to filing for bankruptcy. There are strict qualifications to meet and, depending on which chapter of the Bankruptcy Code you file under, you may need to sell off some of your possessions in order to satisfy your financial obligations. According to FindLaw, there are other alternatives available to you to settle your debt.

Repayment plans

If bankruptcy is your only other option, you can ask your creditors to agree to a repayment plan. It is a better option for a creditor to reduce an interest rate, lower the monthly payment amount or create a long-term repayment plan in order to help a debtor avoid bankruptcy.

Credit counseling

With this option, you work with a credit counseling agency to create a debt repayment plan. Instead of making many multiple payments to multiple creditors, you make one monthly payment to the agency, which then distributes the money to your creditors until no debts remain. In some ways, a debt management plan is similar to filing Chapter 13 bankruptcy but with less impact on your credit rating as a bankruptcy will remain on your record for 10 years. On the other hand, Chapter 13 affords you protection if you miss a payment, and you typically only pay off a portion of your debt, whereas a debt management plan requires you to pay off the entire debt, and a creditor may cancel the plan if you miss a payment. 

Debt consolidation

In some cases, you end up paying less per month by combining your debts. There are three different ways of consolidating your debt so that you only make one payment to one creditor per month:

  • Home equity loan: If you own a home, you can use your equity to consolidate your debt. In this way, you will make one payment and pay less interest per month.
  • Debt transfer to low-interest credit card: When you open a new credit account, some companies will offer a low introductory interest rate, sometimes as low as 0 percent. Pay attention to the terms of the transfer to ensure that your rate will not go up before the debt is repaid.
  • Consolidation loan: By combining separate debts into one loan, your monthly payments and interest rates are typically lower even though the amount you owe remains the same.

 The information in this article is not intended as legal advice but provided for educational purposes only.

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Sigmon & Henderson, PLLC
518 S New Hope Road
Gastonia, NC 28054

Phone: 704-269-6374
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