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Bankruptcy is available when all other debt payment measures have failed and the unpaid debt is simply beyond the means of the consumer to repay. It is essential, then, to understand debt options prior to bankruptcy and to determine which debt repayment method is the least detrimental. Additionally it is the law of the land that you know your debt repayment options prior to bankruptcy.

Here, then, are the most common available debtor options, prior to bankruptcy:

Communicating With Creditors

Communicating with a creditor early on is always the best. Sometimes interest can be lowered or a more convenient payment due date can be worked out. Possibly a client can just pay the debt interest alone for a month. These options usually do not affect your credit report. Late payments, however, do adversely affect your credit file and score since payment history is 35% of your score. Therefore, communication at the first sign of trouble is essential.

Consolidation

Though care must be taken, there may be an option of consolidating debts and having a lower payment over a longer period of time. But the consumer must realize that more interest will be paid because of the longer payback period. Additionally I personally believe that borrowing your way out of debt is rarely a good idea nor is consolidating unsecured credit card debt into a secured home equity loan. However, just as communicating with a creditor does not affect your credit file, debt consolidation will not adversely affect your credit either.

Debt Management Programs (DMP)

When talking to a creditor or consolidation do not appear as viable options, debt counseling should be considered. A Debt Management Program (DMP) can be set up by a debt-counseling agency. Repayment usually occurs within 5 years. Again care must be taken to avoid unscrupulous agencies and I recommend checking the Better Business Bureau as well as talking to former clients. What is the agency's track record, how do they handle debt payment and how flexible are they to your needs? These should all be key questions to a perspective agency. (See Specialized Needs In Debt Counseling as well as other articles at this site for more information.)

A counseling agency does not usually report to a credit bureau. However, if payments are not handled correctly by the agency and a payment is late, the creditor will probably insure the credit bureau is notified. Therefore it is essential to ask the perspective agency key questions as suggested above.

Negotiating

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