How to Find Alternatives to Bankruptcy

By eHow Legal Editor

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Filing for bankruptcy can make your life very difficult, since the black mark will stay on your credit report for about 7 years and will be seen by future creditors, landlords and even employers. Fortunately, there are alternatives to bankruptcy that will not ruin your credit.

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Instructions

Difficulty: Easy

Step1

Negotiate with your creditors. Many creditors will receive absolutely nothing if you declare bankruptcy, so they are typically willing to look for alternatives. Your creditors may be willing to accept a settlement for a portion of the money owed to them, rather than risk trying to recover funds from you during bankruptcy proceedings.

Step2

Consolidate your debt. Debt-consolidation alternatives offer a chance to bring all of your debt to one creditor (usually a bank) that can give you a much lower interest rate than the typically high rates on credit cards and other debts.

Step3

Take no action, rather than declaring bankruptcy. If you have no wages or property, you are "judgment proof," meaning that a judgment would have no effect on you. However, if you acquire property or a steady income within the next 7 years, creditors could instigate proceedings.

Step4

Make a formal proposal plan to your creditors. In the U.S., you can file a "Wage Earner Plan" under Chapter 13, which will allow you to make payments that will be distributed to creditors. A Wage Earner Plan can last up to 5 years.

Step5

Attempt to meet debts. If you can find a way to pay off your debt, you will avoid the blemish of bankruptcy on your credit report. You may be able to pay it off in parts or find an additional source of income.

Tips & Warnings

If you live in a country other than the U.S., you may have other alternatives for creating a formal repayment plan.
Generally, creditors are willing to help find a solution that will allow you to pay back your debt without declaring bankruptcy.
Consult with a bankruptcy specialist before deciding on a course of action. He may be able to point out an ideal plan for your specific situation.
If you choose to consolidate your debt, there are a number of non-profit organizations that can help you with the process, but any organization that requires a payment to start the debt-consolidation process is probably a scam.