Bankrupt is a scary word. It means a person or business is in the midst of financial ruin that can take years to recover from. When people or companies have accrued excessive debt or face losing real estate to foreclosure they often turn to the bankruptcy courts for protection. Unfortunately, this rarely solves the problem and oftentimes makes it worse.

No one wants to be bankrupt, but in today\’s economy it is becoming the norm. Those facing financial distress should take time to become informed about new bankruptcy laws and research bankruptcy alternatives before filing a petition through the court.

The new bankruptcy laws refer to the Bankruptcy Abuse Prevention and Consumer Protection Act enacted by Congress in 2005. BAPCPA has made it difficult and expensive to obtain debt help. Not only are debtors required to reorganize debts under Chapter 13 and adhere to a payment plan that extends up to 5 years they also are required to obtain credit counseling before their petition will be approved.

Credit counseling must be obtained through specific organizations approved by the U.S. Trustee. Individuals who are considering personal bankruptcy may find it helpful to enter into a credit counseling program offered through approved agencies.

In many instances, credit counselors can help debtors avoid bankruptcy by learning money management skills and developing a creditor payment plan. If creditors are unwilling to work with debtors and they are forced into bankruptcy, they will have met the counseling requirements set forth in BAPCPA.

Borrowers who own real estate may want to consider taking out a home equity loan to consolidate debts. Home equity loans are available to borrowers with accrued home equity and adequate credit scores. These loans require debtors to use real estate equity as collateral to secure financing. Borrowers use equity funds to pay off outstanding debts.

Home equity loans can be a good choice for those carrying high interest loans. Real estate loans are charged a much lower rate of interest than other types of loans. By paying off high interest loans, borrowers can reduce monthly expenses.

The downside of home equity loans is property is used as collateral to secure financing. If borrowers default on the second mortgage they place their property at risk for foreclosure, even if they are current on their first mortgage. Another downside is people who are bankrupt usually won\’t qualify for home equity loans.

Another option that might provide debt relief is debt settlement. This has become a hot topic because numerous debt settlement companies are under investigation by the Federal Trade Commission. This is not to say there are not legitimate debt settlement companies, but individuals must carefully research any company offering to reduce debts through creditor negotiations.

It is important to note that creditors are not required by law to reduce outstanding balances, lower interest rates, or eliminate late fees and penalties. Most creditors are willing to reduce balances if debtors offer a reasonable upfront payment.

Debt settlement companies can be costly to work with. Most charge upfront fees and monthly maintenance fees which can amount to nearly as much as settled debt. Debtors should attempt to negotiate debts directly before hiring a debt settlement company. Doing so could potentially save a lot of money, time and frustration.

These are just a few bankruptcy alternatives that may help debtors overcome financial challenges. It is always best to obtain legal counsel to determine which strategies will provide the best results. Taking time to become educated about available options can help you prevent going bankrupt.

Author Bio: Discover more ways to prevent going bankrupt from California real estate investor, Simon Volkov. He offers a personal finance article library covering topics of bankruptcy, bankruptcy alternatives, and foreclosure prevention strategies at www.SimonVolkov.com.

Category: Finances
Keywords: bankrupt,personal bankruptcy,debt settlement,debt consolidation,credit counseling,bankruptcy