There are many people who promote several different types of alternatives to filing for bankruptcy.
For instance, when a person has just one unmanageable debt may want to think about approaching that creditor and negotiating a deal. The upside of this is that it can be an easy and efficient way to get out of a financial crisis.
The downside is that a creditor does not usually have to work out a deal if they do not wish to do so. Moreover, even if they do, a negotiation can still affect one’s credit rating.
Finally, outside of bankruptcy, debt write-offs may be considered taxable income in many circumstances. The end result could be that a Kentucky family manages to get out of one debt only to wind up with a hefty tax bill.
Debt settlement companies
Others who have several different debts may also consider trying a private debt settlement company and paying them to resolve their debt.
While many of these companies may mean well, they often run in to trouble when creditors refuse to negotiate with them.
Moreover, some companies do not fully disclose that their advice can actually do more damage to a person’s credit.
For instance, deliberately not paying debts— and paying the settlement company instead—can lead to lawsuits, late fees, and the like, all of which are also black marks on a person’s credit report.
Tactics to stave off foreclosure
Other bankruptcy alternatives specifically address foreclosure. For example, a family may be able to sell their house in what is called a short sale. If the bank approves the sale, then the family is able to sell a home for less than the mortgage and walk away. The trick is that families have to convince the bank to approve the sale.
Families may also agree just to grant the bank a deed in lieu of foreclosure, but this does little more than save some embarrassment unless the bank also agrees to forgive the balance of the loan.
There are alternatives to getting debt relief out there, but Kentucky families should carefully consider their drawbacks before writing off bankruptcy as their best choice.