Alternatives to Filing for Bankruptcy

Bankruptcy should be a last resort, used after other financial remedies fail to resolve insurmountable debt. Depending on the type and extent of debt, various alternatives to filing for bankruptcy may resolve debt problems and save you from having to file bankruptcy. Financial alternatives include:

• Debt consolidation refers to taking out a loan to pay off all debts in full and then making loan payments to pay off the loan. A second mortgage on a house is often used in debt consolidation loans.


• Debt workout is a negotiated settlement with a credit card company, mortgage company, unsecured creditor, or unsecured creditor to reduce the amount owed so the debtor can pay off debt. For example, if a debtor owes $10,000 in credit card debt, a lawyer could propose payment of $5,000 to negotiate the debt. The lenders and lawyer would work out a settlement amount, and once paid, the debt would be considered paid in full.


• Credit counseling is now required prior to filing bankruptcy under the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) passed in 2005. The Trustee Program/Department of Justice provides a list of approved credit counseling agencies. If credit counseling does not resolve your debt problems and you resort to bankruptcy, you do not have to worry about meeting the credit counseling requirement as long as you complete credit counseling within 180 days prior to filing. Credit counseling educates the debtor about the pitfalls for incurring debt, such as misuse of credit cards and not paying off entire credit card balances when receiving statements. It advocates saving money and buying merchandise with cash. If the counselor provides debt management, he or she may negotiate debt amounts with creditors and do a debt workout.

The nature of your debt

The way you go about resolving debt often depends on the type of debts and assets you have. High credit card and unsecured debt when the debtor does not own a house or substantial assets paints a very different picture from a debtor with a house in mortgage, and other secured debt like cars, boats, and real estate property. The more assets you have, the more you stand to lose when creditors take legal action.

A bankruptcy attorney in Media, Pennsylvania can review your debt situation and advise you about using a bankruptcy alternative or whether to file for bankruptcy.

Scott F. Waterman