Financial hardship can happen for many reasons, including job loss, unexpected medical expenses, rising living costs, divorce, or other major life events. When debt becomes overwhelming, bankruptcy may seem like the only solution.
However, bankruptcy is a significant legal decision with long-term financial implications. Before moving forward, it may be worthwhile to understand the alternatives that could be available depending on your circumstances.
Every financial situation is unique, and the right solution depends on factors such as your income, assets, debts, and long-term goals.
In This Guide
What bankruptcy is
Common types of personal bankruptcy
Three alternatives worth exploring before filing
When bankruptcy may still be appropriate
Understanding your options
What is Bankruptcy?
Bankruptcy is a legal process designed to help individuals and businesses address debts they can no longer repay.
Depending on the type of bankruptcy filed, debts may be discharged, reorganized, or repaid over time under court supervision.
While bankruptcy can provide meaningful financial relief in certain situations, it may also have long-term consequences, including impacts on future borrowing, credit availability, and financial flexibility.
Because of these considerations, many financial professionals recommend evaluating all available options before deciding whether bankruptcy is appropriate.
Common Types of Personal Bankruptcy
There are a few different types of bankruptcy:
Chapter 7 Bankruptcy
Chapter 7 bankruptcy generally involves the liquidation of certain non-exempt assets to satisfy creditors. It is often used by individuals who have limited income and cannot reasonably repay their debts.
Chapter 13 Bankruptcy
Chapter 13 bankruptcy allows eligible individuals to reorganize their debts into a court-approved repayment plan, typically lasting three to five years. Depending on the circumstances, homeowners may be able to retain their homes while making structured payments.
Both types of bankruptcy have specific eligibility requirements and legal consequences. Homeowners considering bankruptcy should consult with a qualified bankruptcy attorney before making a decision.
Three Things to Consider Before Filing for Bankruptcy
1. Contact Your Creditors
If you’re experiencing financial hardship, contacting your creditors early may open the door to options you didn’t know were available.
Some lenders and creditors may offer:
- Temporary hardship programs
- Modified payment plans
- Reduced interest rates
- Payment deferrals
- Loan modifications
While not every request will be approved, proactive communication is often better than waiting until accounts become severely delinquent.
2. Speak With a Certified Credit Counselor
A nonprofit credit counseling agency can help you review your overall financial picture and determine whether alternatives to bankruptcy may be available.
A certified counselor may help you:
- Build a realistic budget
- Prioritize debt repayment
- Review debt management options
- Understand available resources
- Evaluate whether bankruptcy is appropriate
The U.S. Department of Justice maintains a list of approved credit counseling agencies that can be searched by state.
3. Evaluate Home Equity Options
For homeowners who have built significant equity, accessing that equity may be another option worth exploring before filing for bankruptcy.
Depending on credit qualifications and financial circumstances, homeowners may consider:
- Home equity loans
- Home Equity Lines of Credit (HELOCs)
- Cash-out refinancing
- Sale-leaseback programs
Each option has different qualification requirements, costs, and long-term implications.
Traditional lending products typically require lender approval based on factors such as credit score, income, debt-to-income ratio, and available home equity.
Some homeowners who are unable to qualify for traditional financing explore alternative equity-access solutions, including residential sale-leaseback arrangements.
In a sale-leaseback transaction, the homeowner sells the property and remains in the home under a lease agreement for a predetermined period.
SKYDAN Equity Partners is not a bank, mortgage company, or lender. Our Residential Sale-Leaseback Program is a real estate transaction rather than a loan product. Qualified homeowners may access equity through the sale of their property while remaining in the home during the lease period.
Because sale-leaseback programs involve the sale of real estate and changes in ownership rights, homeowners should carefully review all terms, understand the long-term implications, and consider consulting an independent legal or financial advisor before proceeding.
When Bankruptcy May Still Be the Right Choice
Although alternatives exist, bankruptcy may still be the most appropriate solution in certain situations.
Factors that may influence that decision include:
- Total debt obligations
- Available income
- Home equity
- Asset protection
- Legal judgments
- Collection activity
- Long-term financial goals
A qualified bankruptcy attorney or financial advisor can help evaluate your specific circumstances and explain the legal and financial implications of each available option.
Bankruptcy can provide important legal protections for some individuals, but it is not the only option available.
Homeowners facing financial hardship may benefit from exploring creditor negotiations, credit counseling, traditional home equity products, and alternative equity-access solutions before making a final decision.
Taking the time to understand all available options can help you make a more informed financial decision based on your individual circumstances.
If you would like to learn more about residential sale-leaseback programs and other equity-access alternatives, contact SKYDAN Equity Partners for a confidential, no-obligation discussion about your situation and the options that may be available.