Alternatives to Filing Bankruptcy

Bankruptcy Alternatives

Consider Bankruptcy Alternatives before you file

Most folks who have tons of bills and are drowning in debt always think about filing bankruptcy as an option.  For those folks who have been laid off or went through a divorce find themselves in being behind on their bills and feel extremely discouraged on how they can ever catch up.  They figure that they already ruined their credit so why not just file bankruptcy and get a fresh start.  There are many advantages in filing bankruptcy and getting a fresh start but there are also bankruptcy alternatives a consumer can take to avoid bankruptcy as well.

Exempt from Bankruptcy

Bankruptcy will not discharge student loans, tax liens, government fines, and income taxes.  Bankruptcy will discharge credit card debt, auto loans, auto leases, mortgages, apartment leases, home leases, business debt, and judgments.

Negotiation with creditors as Bankruptcy Alternatives

Some bankruptcy alternatives include negotiating with your creditor on a payment plan and see if they can discount your total debt.  For example, if you owe $1,000 on a credit card, see if they can reduce the $1,000 to $500 and settle with you.  See if they can freeze the interest they are charging you until you can have the debt paid off.  If you are behind on your mortgage, contact your mortgage lender and see if they can offer you a forbearance until you get back on your feet.  Many mortgage lenders do not want your house and some will even put the balance you are behind to the back of your mortgage loan.

Some Bankruptcy Alternatives

If you have a high car payment, see if you can surrender your car and see if they will not go after you for the deficiency.  You should consider the pros and cons when deciding whether to file bankruptcy or not.  There are bankruptcy alternatives that you should explore.  I have seen many people file bankruptcy with debts as low as $5,000.

How long will bankruptcy stay on my credit report?

Bankruptcy stays on your personal credit report for 10 years.  You will have a very difficult time to get new credit after filing bankruptcy.  There is a two year waiting period for mortgage loans after the date of a bankruptcy discharge if you want to apply for a home loan.  A bankruptcy will easily drop your credit scores by more than 100 points.  If you can worki things out with your creditors, your credit scores will still suffer but over time, it will go back up.  Negotiating with your creditors is a great bankruptcy alternatives where the negative credit impact will be less than a personal Chapter 7 bankruptcy.


There are cases where there are no bankruptcy alternatives.  For example, if you have a judgment for millions of dollars and you know that you can never pay that judgment, bankruptcy might be your only way out.  If the judgment was filed years ago, you might want to gamble on waiting out the statute of limitations on that particular judgment which is normally ten years.

I strongly recommend that you weigh the pros and cons in filing bankruptcy.  Research on bankruptcy alternatives and see if there are solutions for you to avoid it.  If your debts are primarily student loans, tax liens, and government collections, then you might want to reconsider filing bankruptcy.

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The information contained on Gustan Cho Associates website is for informational purposes only and is not an advertisement for products offered by The Gustan Cho Team @ Gustan Cho Associates or its affiliates. The views and opinions expressed herein are those of the author and/or guest writers of Gustan Cho Associates Mortgage & Real Estate Information Resource Center website and do not reflect the policy of Gustan Cho Associates Lenders Network, its officers, subsidiaries, parent, or affiliates.

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