legitimate alternatives to bankruptcyBefore you consider bankruptcy, you should explore “non-bankruptcy alternatives.”  In fact, the 2005 changes to the bankruptcy laws require that you take a “credit counseling” course before you would even be eligible to file bankruptcy at all.  One of the purposes of credit counseling is to expose you to non-bankruptcy options.

Your first step should be to request current credit reports.  You can all 3 credit bureau reports for free at AnnualCreditReport.com. Often, when you see what you owe in one place and in black and white, your total debt situation may not seem so terrible.

Can I make informal payment  plans?

Once you know what you owe, you may want to create your own payment plan whereby you allocate portions of your disposable income to your various creditors. Obviously, your negotiating position improves if you can offer one or more creditors a lump sum payment. If you can get your creditors to agree to a payment plan, you should confirm your understanding in writing. As part of your agreement to pay, you should propose that negative credit references be removed  when you finish paying your obligations.

If you enter into a payment plan, do your best to stick to it.   You may also want to listen to my interview with Kenny Golde, which I published on my blog.  Kenny is a documentary filmmaker who found himself with hundreds of thousands of dollars of credit card debt and he explains how he negotiated settlement deals for as little as 25 cents on the dollar.

Creditors may want you to sign “consent judgments” or other legal papers spelling out the terms of your agreement to pay. In my opinion, you should avoid  entering into any written contract or consent judgments with creditors without first speaking with an attorney since the paperwork you sign could contain  admissions of certain facts or could waive rights.

What about Consumer Credit Counseling?

Another popular alternative to bankruptcy is CredAbility (formerly known as Consumer Credit Counseling), a nonprofit organization financed by credit card companies and other consumer finance organizations. If your debt is not too overwhelming and you have decent  income, CredAbility may be able to create a payment plan that allows you to pay back your debts over time.

CredAbility has been approved as a credit counseling organization that can offer pre-bankruptcy credit counseling to potential bankruptcy filers.

While CredAbility is an excellent organization, they usually cannot help if you are behind on your car or house payment. They seem to be most effective handling  credit card or other installment debt.  Realize, too, that they are a non-profit organization created by credit card companies. Their mission is to assist you in paying back all of your credit card debt.  CredAbility counselors are not attorneys and they are not required to discuss with you bankruptcy or other options.

There are other “credit counseling services” you may see in the phone book,  advertised on a telephone pole or advertised through unsolicited mail. Some of these services offer to clear your credit file or to get you a new credit file.  Usually, these organizations are rip-offs and you should avoid them. A good rule to follow is “if it sounds too good to be true, it probably is.”

Finally, you should realize that it will take a great deal of both discipline and money to pay off substantial credit card debt.  For example, if you have $10,000 in credit card debt and you want to pay it off in two years, you will need to pay $520 per month; in three years, you will need $382 per month. If you wanted to pay off the $10,000 at $200 per month, it would take you over ten years. Credit card debt is especially stubborn to eliminate because of the high (18% to 20%) interest that keeps adding up. You can figure out how long it would take you to pay off your debt by using an on-line calculator located at the Bankrate financial web site.


Jonathan Ginsberg represents honest, hardworking men and women in the Atlanta area who need bankruptcy protection. Call him at 770-393-4985 for a confidential discussion.

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