Exploring some of the most common alternatives to bankruptcy

On Behalf of | Jun 25, 2024 | Firm News |

Many people struggling with high levels of debt and/or a drop in their income want to avoid bankruptcy if possible. They may look into other potential solutions for regaining control over their finances.

There are several options available for those concerned about their finances. A variety of different systems exist to help people address high levels of debt. The type of debt that an individual has to address and other details about their circumstances can influence which option is best in their case. The following are some of the more common bankruptcy-alternative solutions for those struggling with seemingly insurmountable levels of personal debt.

Repayment agreements with creditors

Perhaps the simplest solution available is to negotiate new payment arrangements with various creditors. Some people handle this process alone. Others work with a company that communicates with their creditors. In many cases, creditors may agree to reduce the monthly payment amount to help keep people compliant with payment arrangements.

Debt restructuring

In some cases, people work with creditors or special companies to restructure or modify existing debt. They may be able to change their interest rates, monthly payments and repayment schedule through negotiations with creditors.

Credit counseling services

Credit counseling services offer advice and education for those who have accumulated too much debt. They involve working with a professional who reviews someone’s debt to come up with a personalized plan to address that debt. Some credit counseling services also connect individuals with options for resolving their debt, including debt consolidation or settlement services.

Debt consolidation

The debt consolidation process involves taking multiple separate financial responsibilities and combining them into one account. Particularly when the debts are credit card balances with high interest rates, debt consolidation could help make debt-related obligations each month more manageable. Instead of juggling multiple accounts and choosing what creditor to pay, an individual only needs to make one payment on the loan that consolidated their debts.

Debt settlement services

Settlement involves communicating with creditors to reduce the total amount paid on an account. Often, settlement requires a lump-sum payment, and the companies that assist with settlements may provide a loan to cover that amount. Debt settlement can help individuals eliminate certain financial obligations. However, they may have new debts going forward because of the loan used to pay the creditors with whom they settle. Those who settle their debts may have that fact reflected on their credit reports in some cases.

Learning more about alternatives to personal bankruptcy could help people realize that bankruptcy may or may not be the best option available for their unique circumstances. Reviewing one’s financial situation carefully with the assistance of a skilled legal team can help people choose the best solution(s) to the issue of overwhelming personal debt.