Bankruptcy looks like an appealing way to get out of debt because it can offer either a new repayment plan process or it can wipe your qualifying debts clean. However, bankruptcy can be complicated and more expensive than other options. Further, bankruptcy may offer you debt relief, but it comes with long term consequences. For example, your bankruptcy can affect your credit for many years after you file it.1 Of course, a lot depends on how good your credit score was pre-bankruptcy.2 Further, the biggest impact of a bankruptcy on your credit score will be towards the beginning years after your bankruptcy.3
Build and Manage Your Credit Reports
Your credit score is very important. You should always make sure to find a budgeting method that works for you, keep current on all your debts, and stay abreast of your credit score. If something is wrong or seems off with your credit score, you should be proactive and call in to correct this information. It may still be possible to rebuild your credit by educating yourself about your finances, paying off debt the best you can, and reducing expenses.
Be Proactive About Credit Counseling
This is already a requirement that you must fulfill months before you file for bankruptcy.4 The whole point of the credit counseling requirement with an agency approved by the U.S. Trustee’s office is to help you make the decision about whether or not you really need to file bankruptcy in the first place.5 But if you are struggling with your debt or you can see that you will be in the near future, it is never too late to begin educating yourself about your credit report and how to manage your finances. You can create your own budget based on your income and expenses and find an expert to help you look at other options to repay your debts.
Credit counseling can help you figure out how to budget more effectively as well. It is important to research credit card companies before taking out a credit card. Once you do get a credit card, you should use it wisely and try to stick to debit instead.6 Further, you should look at ways to reduce your expenses so that you have more left over to pay off creditors.
Learn to Negotiate With Creditors
There are a lot of debts that cannot be discharged through bankruptcy depending on your situation. Either way, it is important to learn to negotiate with creditors regardless of whether or not you can discharge certain debt. If you talk to certain creditors and let them know your situation, you may be able to get a lower interest rate by consolidating loans, modify a secured loan, or settle your debt. Consolidating your debt can make it easier for you to manage as well. Sometimes having one loan to pay off instead of several can be motivating and may lower your interest rate.7 Instead of hiring a debt settlement company to do it for you, you can take matters into your own hands and talk persistently but politely to your credit card company or loan officer about reducing payments. If you come up with a credit counseling plan and show you are prepared, your creditors may be more appreciative and you could be more influential.8
Consider Debt Settlement Instead of Bankruptcy, but Tread Wisely
You have probably seen debt settlement company advertisements on television and other media. If you do decide to pursue debt settlement instead of bankruptcy, you should make sure to pick a trustworthy company. The debt settlement process involves you ceasing your payments to creditors so the company can send money directly to the creditors in affordable payments.9 While debt settlement is a possible alternative to bankruptcy, if you sign up with the wrong company there can be serious consequences such as lawsuits and unnecessary liquidation of your retirement assets.10 Remember that debt settlement companies are typically for-profit companies that usually require you to deposit money in a special savings account before all your debt is settled.11 Further, your creditors are not under any obligation to actually negotiate with these companies.12 A lot of companies are scam companies that will charge fees before they settle your debt and then do not deliver anything afterwards.13
The best solution to avoid these issues if you do decide to go with a debt settlement company is to do your research about a series of companies. Debt relief companies do have to comply with disclosure requirements. They must tell you the price and terms of their services, how long it will take to get results, the possible negative consequences and damage to your credit report if you stop making payments to creditors, and how much money or percentage of each outstanding debt you must save before it makes an offer to each creditor.14 They must also inform you that you can withdraw your money anytime.15
If you are considering options to get out of bankruptcy, you can use any of these tactics to see if you really do have a choice to do something else. You can always consult a bankruptcy attorney if you are uncertain about whether or not you have any options left. Your attorney will be able to guide you through the bankruptcy process and let you know which one is best for you. Moreover, your attorney can let you know if there are any debt settlement options still available to you.
Find out more on how to avoid bankruptcy from a bankruptcy attorney in Phoenix at Ariano & Reppucci, PLLC.
 Brian Reed, 7 Terrifying Things They Don’t Tell You About Bankruptcy, investinganswers.com (Sep. 16, 2011), http://www.investinganswers.com/personal-finance/debt-bankruptcy/7-terrifying-things-they-dont-tell-you-about-bankruptcy-3544.
2 Kathleen Michon, Bankruptcy and Your Credit FAQ, nolo.com, http://www.nolo.com/legal-encyclopedia/bankruptcy-credit-faq.html (last visited Dec. 23, 2014).
3 How To Get An After Bankruptcy Car Loan In Arizona, arizonacreditcenter.com, http://www.arizonacreditcenter.com/bad-credit/getting-an-after-bankruptcy-car-loan/ (last visited Dec. 23, 2014).
4 Stephen Elias, The Pre-Bankruptcy Credit Counseling Requirement, nolo.com, http://www.nolo.com/legal-encyclopedia/the-pre-bankruptcy-credit-counseling-requirement.html (last visited Dec. 23, 2014).
6 See Rebuilding Your Credit After Bankruptcy, suntrust.com, https://www.suntrust.com/ResourceCenter/Article/Rebuilding-Your-Credit-After-Bankruptcy-20140203#.VJox9F4Ac (last visited Dec. 23, 2014).
7 Finding a Bankruptcy Alternative, bankruptcy.findlaw.com, http://bankruptcy.findlaw.com/what-is-bankruptcy/finding-a-bankruptcy-alternative.html (last visited Dec. 23, 2014).
8 Arizona Bankruptcy Alternatives, arizonabankruptcylaw.com, http://www.arizonabankruptcylaw.com/alternatives.html (last visited Dec. 23, 2014).
9 Debt Settlement or Bankruptcy?, thompsonattorney.com, http://www.thompsonattorney.com/Debt-Settlement-or-Bankruptcy.shtml (last visited Dec. 23, 2014).
11 Settling Credit Card Debt, consumer.ftc.gov, http://www.consumer.ftc.gov/articles/0145-settling-credit-card-debt (last visited Dec. 23, 2014).