The Bankruptcy Abuse and Consumer Protection Act was passed in early 2005 with the intention of reforming American bankruptcy law as we know it. The existing laws, according to Congress and the credit card companies, allowed too many debtors who might be capable of repaying at least some of their debts to have them wiped away by the courts. The new law was intended, rightly or wrongly, to eliminate the “bankruptcy of convenience” that allowed many consumers to run up huge debts without repaying them. Under the new law, filing is much more difficult, time consuming and expensive; so much so that it has discouraged many would-be filers from seeking debt relief through the courts.

Given that debt relief through the bankruptcy courts is now so much more difficult, it makes sense that consumers with mounting bills might want to seek alternatives. In order to do that, debtors need to find some other way to manage their increasing debt. Below are a few tips that might help consumers avoid filing for bankruptcy.

Negotiate with your creditors – It is generally a good idea to talk to your creditors as soon as you have a problem. If you are missing payments, call them and explain why. Creditors want to get paid, but they also understand that everyone has financial problems from time to time. They may be able to work out a repayment arrangement with you that you can afford. You will receive much more cooperation from your lenders if you are honest and explain your problem than to simply stop paying without explanation.

Seek credit counseling – Credit counseling sessions are mandatory for filing for bankruptcy, but many people with little or no formal financial training could benefit from meeting with a counselor and explaining their financial problems. The agency can offer help with money management and repayment plans. They may even be able to negotiate some better terms with your creditors if you haven’t already done so yourself. Many agencies are nonprofit, so you will generally find their services to be quite affordable.

Get a debt consolidation loan – A consolidation loan is one that combines several debts, often at high interest rates, into one loan at a lower rate. A home equity loan is ideal for this, and thanks to rising real estate prices, many people now have a reasonable amount of equity in their property. As a bonus, the interest on a home equity loan is tax deductible. Other credit cards with low-interest introductory rates are also good for consolidating debt.

Sell your house – If you do have a lot of equity in your property, it may become necessary to sell your house to pay your bills. This is a drastic step, as you will have to find another place to live, but if the alternative is losing your home to foreclosure, it may be the only sensible choice.

Bankruptcy shouldn’t be taken lightly. Having your debts removed by the courts will leave a mark on your credit report for up to ten years and will make it more difficult and expensive to borrow money or obtain credit in the future. Smart consumers know that avoiding bankruptcy, if at all possible, is a smart financial move.

Bankruptcy – The Last Resort

If you have been in debt before, you understand how it feels. Debt can feel like an elephant on your shoulders day in, and day out. Many people feel as if there is no hope when you feel you owe your soul to creditors and collectors. Bankruptcy seems to be the only choice at this point whether for your business or for you personally. Is Bankruptcy the choice you should take?

That question is not so easily answered and there may be many things that the general public does not necessarily understand about bankruptcy. Bankrupcy, for the most part, is a societal and governmental means to finding the right solution for your debts when all else has failed. As it stands now, if you file for bankruptcy and are granted bankruptcy, you most definitely deserve it. The laws that govern the various types of bankruptcy make it almost impossible for someone to claim if they don’t necessarily need to. The amount of paperwork has increased, the court fees have increased, and the overall trouble to file has made it quite a struggle for just anyone to qualify for bankrupcy.

Before such action is taken, there are programs to help you get out of debt such as debt consolidation and consumer credit counseling services. These types of services consolidate your debts in to a small, structured payment plan. These services somewhat mimic the same concepts that bankruptcy to get you out of debt. For example, if you file for chapter 13 bankrupcy, all your debts are to be paid off in a structured payment period of between 3-5 years. Often times, like debt consoladation, the amount you end up paying is less than what you originally owed. You get to keep your possessions and your debt is cleared.

So which method of getting out of debt should you take? It should be situational and based on every individuals specific case. Probably the best method would be to speak with a credit counselor in regards to your personal debts. Understanding your debt and the options to you are usually the primary step in making a wise decision about your credit. If your debt is beyond help and you’ve exhausted all other methods, maybe you should consider bankruptcy.

One major thing to remember is that you should never be ashamed to claim bankruptcy. Individuals get caught in the preditorial credit trap and have sales people pushing credit cards in their face every time they shop. We are not taught in school about finances as much as we should be. We are not prepared for the “big business” world when we graduate high school and we definitely know nothing about living on our own. The good part is that there are a number of institutional answers and guidance which are available to every consumer nationwide. The worst thing you can do about your debt is to do nothing at all.