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What To Do When Bankruptcy Feels Like the Only Option

If you’ve backed yourself into a financial corner, you aren’t alone. There are millions of Americans who are currently battling difficult financial situations, due to poor financial planning and money mismanagement.

Outside of those debt-sufferers who are responsible for their own financial woes, remains a subpopulation of those faced with financial trouble, through no fault of their own. Regardless of your situation, worrying about compounding debt and a dwindling bank balance can lead to anxiety, depression, and impacted self-esteem.

As the pressure builds and your financial anxiety begins to bubble, you might find yourself gravitating towards filing bankruptcy, feeling like it’s your only way out. While it can be a possible solution to your financial difficulties, it likely won’t be the most painless option.

For other options in restoring your finances, here is a list of other routes you can pursue. Before settling on a solution, take the time to investigate all your options before making a decision.

Debt consolidation

A hefty collection of credit cards, home loans, car loans, and/or student loans may be to blame for your financial problems. If you find yourself dreading your inevitable bookkeeping nightmare awaiting you as you open bills and write countless checks, debt consolidation may be for you. The sheer number of payments you have to make might be, unnecessarily, draining your cash flow.

If your credit score is still in reasonably good shape, you may qualify for a debt consolidation loan. Such a loan would allow you to collapse all of your unsecured debt (credit cards) payments into a single loan. This could effectively lower your overall APR, while also lowering the amount of cash you have to pay out each month. Debt consolidation may alleviate some of your household’s bookkeeping issues, as well.

Debt settlement

If you don’t qualify for a debt consolidation loan, you might want to consider enlisting the services of a debt counselor to help you approach your creditors. A debt counselor or debt settlement company may be able to convince your creditors to forgive a portion of your debt and lower your current interest rates. Similarly to debt consolidation, debt settlement can effectively lower the amount of cash you have to mail out to creditors every month.

Most creditors are willing to settle debt conflicts and come to an agreement. For the creditor, it’s better to receive a promise of repayment for a fraction of the debt, as opposed to erasing any possibility for repayment if you choose to file for bankruptcy.

Reverse mortgage

If you have equity in your home, you may be able to secure a reverse mortgage. A reverse mortgage would allow you to pull equity out of your home while eliminating the need to make additional mortgage payments in the future.

The amount of monthly interest you’d owe would simply be added to your loan balance until you have the resources to pay off the loan or until you pass away. In the case of death, property ownership will revert to the lender. Reverse mortgages have the power to catalyze an additional cash flow that you can dedicate to paying down other debt until your financial troubles subside.

Tap into retirement savings

If you have a 401K or IRA, there’s a good chance your investment plan will allow you to borrow from yourself against your savings. Since the additional debt is owed to yourself, it won’t necessarily create an additional payment obligation, and you’ll be able to pay off some of your existing debt.

The IRS permits this financial-recovery strategy without penalty, as long as you follow IRS and plan guidelines. You also benefit from the fact that any interest you might have to pay is credited to your investment account as investment income.

While this is not idea, it is at least an option.

Filing Bankruptcy

After exhausting all other options, it’s possible your only way back to financial stability might be through bankruptcy. Yes, it will cause significant damage to your credit score. It might even affect your ability to secure a home or job. However, it still has the potential to relieve the stress stirred by confronting your financial problems head-on and dealing with angry creditors.

If you’ve reached the point where bankruptcy feels like the only option, you’ll want to decide whether you should file for chapter 7 or chapter 13 bankruptcy. It’s best to discuss these options with an attorney before proceeding, but for the purpose of your own research, here’s a quick overview of the two types of bankruptcy. For more information, check out this helpful resource from wh Law.

Chapter 13

This form of bankruptcy will allow you to keep your assets. You’ll also receive the opportunity to halt any foreclosure proceedings, as well as creditor harassment. The courts will mandate that your debt be reorganized. To reorganize your debt, you’ll be required to work with your creditors to develop new payment plans for three to five years.

Chapter 7

If your income is too low to qualify for chapter 13, chapter 7 bankruptcy may be the last resort. The courts will require that you liquidate nonexempt property to cover as much of your debt as possible. In turn, the courts will clear the rest of your qualifying debt. IRS and child support obligations are not included, as part of this agreement.


In the end, any of these options should give you much-needed peace of mind when confronting your shackling debt. As you’re presented with opportunities to polish your finances, accept it as a second chance for a new lease on a brighter financial life.