What are some alternatives to bankruptcy?
- Doing nothing. This may be an appropriate strategy where the debts are small and/or where the debtor is elderly, judgment proof and likely to remain so.
- Negotiating. Creditors are sometimes willing to settle on delinquent debt for a percentage of the balance owed. The creditor typically requires that the settlement be paid in a lump sum. There may be tax consequences as the forgiven debt is treated as income unless the taxpayer is insolvent. There are companies in the business of “debt adjusting” that will represent you in such negotiations with creditors. These companies are always overpriced, often ineffective and on occasion, unscrupulous.
- Credit counseling. Credit counselors are funded by creditors and will often set up a debt management plan to pay back unsecured consumer debts. Oftentimes a credit counselor is able to negotiate reduced interest rates and late fees.
- Offer in compromise. For individuals who have primarily tax debts, offer in compromise with the federal or state taxing authorities is a very legitimate alternative.
- Foreclosure assistance services. There is nothing positive to say about companies that prey upon homeowners whose homes are in foreclosure.