If you own a business and have accumulated debts, you can no longer manage, filing bankruptcy can be an option. However, you will have a tough job clearing the debts. Filing for bankruptcy means your credit score goes to zero or worse, which makes it hard for you to borrow money or even get a job. Even though businesses have faced a rough patch over the past few years, filing for bankruptcy is never a good option. You can benefit from other alternatives to surrendering and keeping your business. It is essential to sit down and look for other means and a plan to help you dig your way out of the debt and avoid the stress and other consequences of bankruptcy.
Working with a certified credit counselor to assess the situation and advise on the way forward can be a good idea. So, before you choose bankruptcy as the only option, work with the counselor to know the best choice. The following are alternatives to filing for bankruptcy.
- Debt Consolidation
An excellent alternative to bankruptcy can be debt consolidation. That means taking a loan that will help pay off the debts. A good thing can be to take personal loans from a lender or bank and use it to pay off the debts that may ruin your credit score or accumulate higher interest. The best thing about most personal loans is that they are quick to approve and don’t require collateral. A personal loan can help consolidate your debt and save on interest. If you are eligible for a personal loan with much lower interest rates, you can use it to reduce the interest on other debts. You can transfer the debt to the card and utilize the grace period given by the lender to pay it down. However, before you take out the loan, confirm that it allows you to transfer the money directly to the creditors.
Personal loans have an advantage since they give you more time to make payments at lower interest rates than creditors. Speak with your credit counseling agency to know the best way to do this.
- Settling Debt
It can be a great idea to begin settling your debt. You can go for a debt settlement firm or do it independently. The most important thing is to convince the creditors to allow you to pay less than you owe them. It may be complex but forgiving part of your debt may allow you to clear the outstanding balance. However, for this to work, you must have defaulted since the creditor will not forgive the debt if you have been making small payments. If you file for bankruptcy, the creditor risks not getting anything from you. Therefore, they might be ready for the deal to allow you to pay less.
Before you do this, consider the conditions the creditor gives. The choice may affect your future credit if the debt you owe them is reported to your tax returns. That means it will always show up on your credit report, lowering your credit score. A low credit score may affect your future when you want to borrow money. So, think about this option carefully. If you are going to use a debt settlement company, be careful with those that ask for a fee before they settle the debt. The company is supposed to negotiate with the creditor and come to an agreement before they ask for a fee.
- Borrowing Money from Friends and Family
You can also borrow money from family and friends to settle debts. However, ensure this is your last option since it has many drawbacks. For instance, you risk losing a friend or a relationship with family if you don’t pay back the loan. If you have to borrow from them, take it as a ban loan that you must repay no matter what. It can be a good idea to write it down and stick to the agreement. This way, you will have saved the relationship and your business.
- Selling Assets
If you don’t have enough income to settle the debts, consider selling some of your assets. You can conduct a garage sale to sell some items to pay the debt and avoid losing your business. If you file for Chapter 7 bankruptcy, there is a chance you can be allowed to sell your assets to make the payments. You will need to direct the money you get from selling your items to an account for settling debts. You may also sell some assets in your business to help cover the debt. So, devise a plan and don’t sell the essential items you need for business operations.
- Earning Extra Income
Finding another job can be a good idea if you need more than the income you are getting to support your life and repay the debts. A second income will help you generate more money and avoid bankruptcy. Look for various ways of making money and pick one that applies to you. You can start freelancing, online tutoring, ridesharing, delivery businesses, etc. Whichever choice you choose, ensure you have enough time and energy to juggle the two jobs. The extra money you get will help pay down the debt and prevent bankruptcy.
- Reducing Expenses and Changing Lifestyle
Lowering your monthly budget and changing your lifestyle can help you save money for settling debts. You may be a spendthrift who uses most of your money on luxurious things with an inflated monthly budget. So, sit down and adjust your budget. Figure out how much money you get, how much you use, and how much you save. Then, determine which parts of your spending you can adjust to keep more. Check where most of your money is going and see if it is worth it. Some things like cable TV, eating out in a luxurious hotel, or gym membership can hold at the moment.
- Restructuring Your Mortgage
Another great way of settling your debt is restructuring your mortgage. If you are paying for a mortgage, you can ask the lender to restructure your payments and develop a new payment plan that will allow you to spend less and leave some for settling your debt. You can also consider asking the lender to refinance the mortgage, which means applying for a new loan with a lower interest rate and an extended period. However, you need a good credit score and history to qualify for mortgage refinancing.
Before you file for bankruptcy, it is a good idea to look at these alternatives to see what can work for you. Filing for bankruptcy comes with consequences and costs you more money. Therefore, let your credit counselor help you pick the available options to settle your business debts before considering bankruptcy.