June 13, 2021

What are My Alternatives to Bankruptcy?

Many people ask us abBankruptcy Alternativesout alternatives to bankruptcy, so we decided to take a look on the web to see what is out there.  We came across an interesting article entitled “What are my Alternatives to Bankruptcy?” on a bankruptcy site covering Chapter 7 and Chapter 13 filings in Dothan, Alabama.

First, the author suggests that before taking any steps toward legal action, you should first obtain your credit report from a credit bureau.  The three major credit bureaus are Equifax, Experian, and TransUnion and you can obtain free copies of your credit reports online at AnnualCreditReport.com.  Your credit report will include the names of your creditors, the names of any collection agencies used by those creditors and the amounts owed to each.

You may find that when all of your credit accounts are laid out in front of you, your debt situation may appear less overwhelming than you had originally anticipated.  You may find that by simply eliminating certain non-essentials from your budget, you will be able to pay off your debts and avoid bankruptcy entirely.

You also may be able to use the information from your credit reports to negotiate and set up your own payment plan with your creditor(s).  Of course, if you and your creditor both agree to an “informal” payment plan, it is highly recommended to confirm your agreement in writing.  Beware that in the negotiation process, creditors may want you to sign “consent judgments” or other legal documents that may waive some of your rights.  You should, of course, first speak with an attorney before signing any type of binding legal document or contract.

Consumer Credit Counseling, or CredAbility, also serves an important role as a common alternative to bankruptcy.  As long as you have a steady income and your debt is fairly manageable, CredAbility may be able to help you set up a payment plan whereby you pay back your debts over an extended period of time.

Though CredAbility can serve as a great alternative option to bankruptcy given the right circumstances, one if its major drawbacks is its inability to help you with your car or house payments.  In addition, as a non-profit organization financed by MasterCard and Visa, CredAbility cannot help you if you owe money to other credit card companies such as American Express or Discover.  Third, a CredAbility payment plan may severely wreak havoc on your credit as this type of payment plan is considered “delinquent pay” by the credit bureaus.

As an aside, you should probably avoid private debt consolidation companies like the ones who advertise on the radio and TV.  Not only do these companies charge outrageously high fees, but also they attempt to lure the desperate debtor in with ridiculous and unfounded promises to magically make debt disappear.  In other words, there are no “secrets that the credit card companies don’t want you to know.”

Finally, you may see mistakes on your credit reports that can be removed relatively easily with a challenge letter.  You also potentially have recourse for financial damages against the improperly reporting creditor and possibly even the credit reporting agency if you can show that the mistake has caused you harm.

Bottom line: perform a little due diligence on your credit profile and you may find that bankruptcy is not the obvious choice.


Jonathan Ginsberg has been in private law practice since 1987. He writes and teaches about Chapter 7 and Chapter 13 bankruptcy protection.