ABA Family Legal Guide

Consumer Bankruptcy

Introduction to Bankruptcy

Alternatives to Bankruptcy

Right now, I cannot pay my debts. Besides bankruptcy, do I have any options?

Yes, there are alternatives that can help you with debts that you cannot pay. Creditors might be willing to settle their claim for a smaller cash payment, or they might be willing to stretch out the term of the loan and reduce the size of the payments. This would allow you to pay off the debt by making smaller payments over a longer period of time and the creditor would eventually receive the full economic benefit of its bargain.

You may also find you are judgment proof and do not need to file for bankruptcy to protect your property and wages. Judgment proof simply means that you have so little money and property that you couldn't pay a court judgment against you. If there's no point in creditors going after you in court, there may be less reason for you to declare bankruptcy.

Discuss this option with your credit counselor. However, remember that if you don't declare bankruptcy, creditors can continue their collection efforts and will be able to enforce court judgments against you if your financial situation improves.