Most people think of bankruptcy as the absolute last option once their debt load becomes too overwhelming, but realistically, this is not how the process is supposed to work. Instead, the basic idea is that bankruptcy provides the debtor with relief before he or she is rendered utterly destitute. This means, as a general rule, the time for bankruptcy is once you realize that you will soon be utterly overwhelmed by debt. Obviously, bankruptcy is not a good idea though and generally speaking the best idea is to avoid getting yourself in such a debt situation in the first place.
Unless the debtor is a home owner with a lot of equity in their property, most people that find themselves considering bankruptcy are people that do not really qualify for any sort of additional loan. This pretty much rules out the idea of a debt consolidation loan or a personal loan meant for debt consolidation purposes. The big exception to this rule are people that own significant equity in their homes. People that already own a lot of equity can frequently get a home equity loan, or second mortgage, using the equity as their collateral. If this is an option for you, it would probably be better than filing for bankruptcy.
Being unable to get a loan or credit, another option is to at least explore the possibility of debt settlement agreements. These are agreements made directly between the creditor and the debtor whereby the overall amount owed is reduced in exchange for a solid payment of most of the debt immediately. The idea from the lender’s perspective is that it is better to get much or most of the amount owed now, as opposed to waiting a prolonged period of time to for the full amount owed. However, in most cases, debt settlement requires the debtor to pay a large percentage of the debt up front, which may not be an option. After all, if the debtor has enough to make the large upfront payment, then he or she probably has enough to make the smaller, regular payments.
Other options may also be available, depending on your personal situation. As a matter of law, anyone wishing to file for bankruptcy today has to go through credit counseling with an approved credit counseling agency. These credit counselors will review your overall situation – both income and liabilities – and then will make a recommendation on the best way to proceed. In the process, they may well suggest some other option that would be preferable to bankruptcy and in fact this is why the counseling requirement was added to the bankruptcy process in the United States. If there is a viable alternative, the credit counselors will recommend it; and they may even refuse to issue you the certificate you need to prove that you underwent the counseling at all.
Bankruptcy is never a good option, though sometimes it is the best option available. However, making this determination really requires a consultation with a debt expert, which is why the requirement for credit counseling before you can file for bankruptcy might be a pretty good idea.
