Bankruptcy seems to be the first thing some people consider when they find they are unable to pay the payments that are due on loans and credit cards, but this should be the last thing that is considered. Not only is it a permanent solution to a temporary problem, but it will also ruin your chances of buying anything else for ten years instead of the customary seven.

What are the other options? The first thing you should do when you find yourself unable to pay the payments on your loans or credit cards is to contact the creditor directly and see if a payment plan can be developed. In the case of credit cards, this involves the creditor reducing the interest rate for a certain period, anywhere from three months to one year, which in turn reduces the amount of your minimum payment. Though this keeps your credit intact, at least once you have brought the payments up to date, the creditor will still close your account. If your account is extremely past due, many creditors will re-age the account after you have set up a payment plan and have paid the first three payments on time.

If you have been unable to work anything out with the creditor, or if the plan that you worked out failed, you can consider a consolidation loan with one a debt consolidation company. Be careful with these, though, that you don’t sign with one of the ones who will hold onto your money, and therefore force your creditor to accept a settlement without your permission. A settlement not only goes on your credit report as a bankruptcy, but it also leaves you with a tax liability for the amount of the loan that you did not have to pay back. On the other hand, a good debt consolidation program can help you get your debt to a manageable level and help save your credit rating as well. Of course, if your debts are in serious condition, this may not work for you, but it’s certainly something that should be considered before bankruptcy.

A third alternative is to file for a Chapter about the reorganization. Although this still falls under the bankruptcy law, it allows you to repay your debt with the assistance of a trustee who will distribute the funds for you. In addition, this will only stay on your credit for seven years instead of ten like a bankruptcy liquidation. Depending on your assets, you may not have to pay all of your creditors in full, but after the period expires, any unpaid bills are “forgiven.” Like bankruptcy, the reorganization is, unlike the other two alternatives, it’s not cheap. Depending on the lawyer, and you will need a lawyer, it can cost several hundred dollars. If, however, you’re about to lose your house or your car, it’s a reasonable alternative.