Alternatives to Bankruptcy was last modified: April 12th, 2015 by Howard Iken

Alternatives to Chapter 7 Bankruptcy

Chapter 7 Bankruptcy is not for everyone. You should only consider bankruptcy if no alternative is practical or available. Here are some of the alternatives and a list of pros and cons:

Pay off your debt


  • Persons with a good credit score will stay that way
  • No lawyers involved
  • No court involved
  • Your information stays private
  • The option of bankruptcy remains available
  • Some creditors will settle for .50 on the dollar
  • You keep all of your assets intact


  • May not be possible
  • Your credit may already be ruined

Fight back against creditors


  • Some collectors violate Federal Law and can be countersued
  • This option is very satisfying
  • Best used if you only have extremely old debts
  • Can be used to get rid of debt
  • Can be used to restore your good credit rating


  • You can possibly lose
  • Cannot be used for new debts
  • If you lose, you will pay increased attorney fees

Do nothing – Stick your head in the sand


  • Many creditors will never sue you
  • Debts become unenforceable after 5 years
  • Negative items fall off your credit report after 8 years


  • Some debt collectors will illegally sue you after 5 years
  • Some debt collectors will illegally ruin your credit report after 5 years

The Truth About Short Sales and Foreclosure Defense


Short sales and foreclosure defense has become a HUGE industry. Many companies and law firms involved in those services have grown rapidly because they offer a desperate service to desperate people. The promises seem like magic and are difficult for anyone in trouble to ignore ….


Consolidate your debt and be debt-free in 24 months

Negotiate lower mortgage payments

Short sell your home – and walk away without debt


Here is the Truth about those services


Consolidate your debt and be debt free: you receive a promise that a “negotiator” or attorney will contact all of your creditors and negotiate lower payments and lower amounts owed. You make one payment every month and the debt consolidator divides it up to make prorated payments to all your creditors. The “service” gets an up front fee from you and then promises the “magic” will follow.  The problem: most payment plans fail because one or more creditors bail out in the middle. No creditor puts their agreement in writing, so they are free to back out any time they want. And when one creditor backs out, the whole thing blows up. By that time the “service” already has what they want – a two to seven thousand dollar fee. You end up in worse shape than you were before you approached the “service.”


Negotiate lower mortgage payments: The “service”, either a service company or a law firm offers to negotiate with your mortgage company and get you lower payments. This is a real possibility but the bottom line: they are selling a service you can do yourself. If you have some persistence, are able to keep accurate records, and do extensive internet research, there is no reason you cannot negotiate a lower mortgage payment yourself.  Even in the event you work with a law firm – the entire operation will be conducted by secretaries and assistants. Do it yourself and you will save thousands of dollars.


Short sell your home: Attorneys, realtors, and financial companies promise to arrange a short sale of your home.  What is in it for them?  Approximately 5 – 10 thousand dollars in fees earned from sales commissions, writing title insurance, doing closing documents, etc. What is in it for you? You get your house off your back, and receive the temporary, short-lived impression that you are debt-free. The truth: most short sales do not relieve you of the unpaid debt. Buried in the fine print of the documents is language that gives the lender the right to go after the unpaid debt. There is a huge industry in “buying bad debt.” What happens is a debt buyer purchases your unpaid debt for pennies on the dollar. Years from now you will find negative entries on your credit report. You may even find yourself on the receiving end of a lawsuit. The bottom line: you are not relieved from the unpaid debt unless the short sale document actually says in plain, understandable english that all unpaid debt is satisfied by the short sale.


Tax Traps for the Unwary:  Short sales and foreclosures can generate surprise tax bills for you. These tax bills may be HUGE. Many services that offer short sales and foreclosure defense are not properly advising clients on their possible tax consequences. Before you proceed with any type of non-bankruptcy service, see a tax advisor and discuss your potential course of action. Once the short sale is complete – it is too late.  And a later bankruptcy filing may not be able to discharge your tax bill.



In Contrast – a Bankruptcy Filing:

  • Is under a court order – from a Federal Court
  • Is not optional for the creditors – they have to follow the court order
  • Is laid out on a defined plan – no guessing
  • Can get rid of an unwanted house – with no future liability
  • Can eliminate your second mortgage permanently and lower your overall payments
  • Can eliminate or permanently lower your credit card debt
  • Is done by reputable attorneys – no smoke, no mirrors


To be fair …. we are sure there are reputable, honest services out there that will help you. But they are a needle in the haystack. That is why the Federal Trade Commission just passed a rule that heavily regulates and limits abuse cause by certain “services.”

Schedule a Free Consultation

Need assistance with this form?