Bankruptcy Alternatives


Courthouse in Auburn, California
Courthouse in Auburn, California

Consumer Credit Services

There are several companies available that promise to take over all of your consumer debt and negotiate directly with your creditors in your behalf. Some of these business are "non-profit" agencies but most of them are private businesses. They typically promise to reduce your interest rate and lower the amount of the actual debt.

Pros:

  • They can provide immediate relief from the pressure of creditor harassment
  • They can come up with a plan that does actually reduce the amount you owe.

Cons:

  • Most of them work for and are funded by the credit card companies
  • They are limited as to the total reduction of the accounts
  • The final payment you are required to make on these debts goes through their office and is usually not much of a reduction over what you would normally pay.
  • They charge a fee for their services which can be substantial in some cases.
  • The payment plans often extend over several years.
  • The impact on your credit is usually insignificant and will delay your "credit recovery" in most cases rather than expedite it.

Negotiate Directly with your Creditors

  • Typically a credit card company will negotiate the balance of an account down to 50% (or even less) if they feel that ultimate payment by you is in doubt.
  • In most cases the more delinquent you are the more willing they are to compromise the debt.
  • The negotiations can be difficult because these are professional debt collectors you are dealing with.
  • You can handle these negotiations yourself or retain a professional to represent you which requires your written authorization.
  • Most compromises that are agreed upon require a cash payment in full to the creditor upon completion of the agreement.

Don't Pay Your Creditors (Ignore them)

  • Creditors will typically try to collect the debt as long as they can contact you by phone, letter, or in person. This will go on for at least 10 years, often longer.
  • Talking with them to "explain" your situation is a waste of time in the vast majority of situations. This sends the message that you care about the debt which encourages them in their collection efforts and often results in escalation of collection activity.
  • The creditor may sue you over the debt which will result in a judgment against you.
  • If your plan is to try to avoid these creditors as long as you can then you would probably want to take steps to make yourself "judgment proof" if possible.
  • It is advisable to seek counsel with an attorney if this is the plan of action you plan on pursuing.

Borrow Money from your Retirement Account or from Friends or Relative

  • This is usually inadvisable and can greatly compound your debt problems. Often there are unexpected tax consequences.
  • Be sure you have thoroughly explored all other alternative and consulted with an attorney before you take this kind of a step.

Refinance your property or take out a 2nd mortgage.

  • "Usually not advisable. (See comments above)

Considering Bankruptcy?

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