What are the Alternatives to Bankruptcy?

This is a common question that many debtors ask when they first consider bankruptcy. Bankruptcy can feel scary, so looking at the alternatives is a good move. If you feel you may be able to pay off your debts if you could just spread out the payments a little, you may want to explore these other options first.

Bankruptcy is a Unique Option

First of all, you should understand that bankruptcy is unique. Bankruptcy may be a good fit if you are facing insurmountable debt, and you don’t have the income to catch up on your payments. No other option will carry the ability for you to eliminate bills and start with a clean slate. After reading about these alternatives, consider whether you think you can successfully fight your way out of debt with them, or if you’d just delay a bankruptcy filing that could have given you a fresh start sooner.

Alternatives to Bankruptcy

There are some options that you may consider if you feel your financial situation is not so dire. These options are typically open to those who have uncomfortably high debts with monthly payments that significantly impede their ability to cover day-to-day expenses, but they are still able to make their payments. If you have a regular monthly income and don’t expect to incur significant additional debts in the near future, these alternatives may work for you.

  • Debt Consolidation – the most popular alternative to bankruptcy is debt consolidation. You can pay a company to negotiate with your creditors to try to excuse some of your debts. Afterwards, they will roll all of your monthly bills up into one payment – to them. They become just another lender that you have to pay every month, though your monthly payment is often lower than the combined payments you had before.
  • Negotiate with your Creditors – if you have some income, and can afford to make some payments, you may be able to negotiate with your credits directly. In some cases they may be willing to let you pay off a debt over a longer period with lower monthly payments. After all, they would rather collect what you owe than see you file bankruptcy.
  • Foreclosure – in some cases a mortgage is the root cause of a bankruptcy. If that’s the case, you may want to let your home fall into foreclosure. This may let you eliminate the one large debt that is burying you, without impacting the rest of your finances. Like a bankruptcy, a foreclosure will negatively impact your credit score, but you may find it is a better option for you.

As mentioned above, none of these options will give you a fresh start or eliminate all of your bills, but in some circumstances they may be a preferable alternative to filing bankruptcy.