Bankruptcy Alternatives an Overview

Bankruptcy may seem like the perfect way to get out of debt sometimes.  In fact, sometimes, it may seem like the only way out of a financial death spiral that you may not have previously thought was possible to get out of.  When you are looking at the possibility of bankruptcy, it may not seem like there are any other alternatives, but there are always alternatives.  Some of them are better than others, but all of them will get you on the right track eventually.  Here are some of the alternatives to bankruptcy, and the pros and cons for each of them.

*Credit counseling

Credit counselors know how to work with your creditors to help lower interest rates, lower payments, and negotiate better deals.  They can often navigate the areas of improving credit scores better than anyone else because they fully understand how credit works, and how to negotiate with creditors.  There are still a few problems that you may encounter by using a credit counselor.  One problem is that all credit counselors are not created equal.  When you are looking for a credit counselor, look for one that is reputable.  Another problem is that a credit counselor costs money, and you still have to pay your bills on top of what you are paying to the credit counselor.

*Negotiate with your creditors

This sounds like an easy alternative.  However, not all creditors are easy to negotiate with.  Use the wrong tactic with some of them, and it could land you in court, with a judgement against you.  However, this is still a good way to get your credit back on track if you can afford to do so.  Whenever possible, make sure that you get whatever agreements you have made with them in writing so that they cannot go back on their word, especially when you finally get things paid off.  You need to get that in writing, or they may turn around and ruin your credit anyway.

*Just don’t pay

This is not the best alternative, but it can work with certain creditors, especially when you owe small amounts.  Many, if not most creditors may call you and harass you frequently, but rarely will they take you to court over your debts.  If you do not pay these creditors for a period of 7 years, the information will fall off of your credit report and you will no longer be obligated to pay.  There are certain types of debt that you do have to be careful of in these cases such as child support debt and student loan debt that never go away. 

If you are going to go this route, try to have at least a few debts that you are paying on so that you can have a good credit history once the worst of it has expired.  Another word of caution on this method of getting out of debt is that if you are taken to court and have judgements or liens against you, you may want to file bankruptcy anyway.  This will also leave you open to “zombie” debt collectors.  These are collectors that buy debt for pennies on the dollar and try to get you to pay it even though you are not obligated to.

These are the alternatives to filing bankruptcy from the best to the worst.  Any of these methods will get you out of debt eventually.  The trick is not to go back into debt if you can help it.  Pay for things with cash whenever possible, and get yourself on track.  This will help you never to have to think about whether or not you need to file bankruptcy again.