Tue Sep 02 2014   

Bankruptcy Law Research Guide:
Alternatives To Bankruptcy

Creditor Negotiation

One option is to contact your creditors yourself and see if it is possible to work out an arrangement to satisfy the debt. You might be able to convince the creditor to lower your interest rate, extend the repayment time, lower the monthly minimum due, or settle the debt for a lump sum payment. Creditors are not normally under any obligation to alter the terms of the initial loan agreement, but it never hurts to ask.

Consumer Credit Counseling Agencies

An option for those who do not want to contact creditors directly is to use the services of a nonprofit credit or debt counseling agency. These agencies provide a variety of services such as financial assessment, debt management plans, counseling, and consumer education.

An agency can work with your creditors to set up a debt management plan. They contact your creditors and work out an agreement for you to pay off your unsecured debts through the agency. Often, the agency can get creditors to lower interest rates or waive fees. Then, you pay the agency each month for a certain number of months and the agency distributes the money to your creditors. At the end of the plan, your debts are normally paid off.

It is very important to choose a reputable credit counseling agency. The Federal Trade Commission Fiscal Fitness website provides advice about choosing a credit counseling agency.

In addition, the United States Bankruptcy Trustee Program’s Credit Counseling & Debtor Education Information website provides a list of credit counseling agencies for each state that are approved to provide the debt counseling required of bankruptcy filers. These agencies also provide credit counseling services to the non-bankruptcy filing public.

Debt-Negotiating Companies

Another option is to use the services of a commercial debt-negotiating company. Even though some businesses of this type claim to be non-profit, most are for-profit companies which charge debtors for their services, unlike consumer credit counseling agencies. The Federal Trade Commission Fiscal Fitness website advises consumers to exercise caution in dealing with such companies.

Doing Nothing

Sometimes, doing nothing is the best approach. Declaring bankruptcy costs money, and working out an arrangement with creditors will require you to have some extra cash or future income to pay off debts.

If you are a person with few assets and limited income, your creditors might not consider it worthwhile to sue you. Or, if a creditor does sue and get a judgment against you, the creditor will only be able to enforce the judgment if you have assets that can be seized or garnished. Normally, a creditor cannot take essentials such as clothing, ordinary household furnishings, personal effects, Social Security payments, unemployment benefits, or public assistance benefits. Also, there are limitations on wage garnishments. See the Garnishment page for more information.

Page Updated:  4 November 2008