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What are the alternatives to Chapter 7 bankruptcy?

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In a Nutshell

Bankruptcy is not right for everyone or every situation. If you're not sure whether bankruptcy is right for you, knowing what alternatives are available to give you some relief from your debts is a critical part of making the right decision for you and your family. Let's take a look at some of the most common bankruptcy alternatives.

Written by Attorney Andrea Wimmer
Updated August 7, 2020

Bankruptcy is not right for everyone or every situation. If you're not sure whether bankruptcy is right for you, knowing what alternatives are available to give you some relief from your debts is a critical part of making the right decision for you and your family. Let's take a look at some of the most common bankruptcy alternatives.

Pay as agreed

The only way to make sure your credit score and credit history is not negatively impacted is to pay your debts as agreed by making at least the minimum payment every month. If possible, pay more than the minimum due every month to save on interest and get out of debt faster. Of course, if this were as easy as it sounds, you probably wouldn't be reading this article. So, let's take a look at what other bankruptcy alternatives are out there that can actually help you make ends meet, not only in the long run, but in the short term, too.

Debt Consolidation

Debt consolidation may be right for you if you have enough income to pay your debts but may have a hard time keeping up with the various minimum payments every month and tend to forget about them. Additionally, debt consolidation can be a useful tool to reduce the cost of the money you've borrowed by decreasing the amount of interest you have to pay. Debt consolidation loans and balance transfers at low (or 0%) interest are often available only to those with good credit. If you think debt consolidation is right for you but are worried about your credit score, consider going through a debt management plan instead. You can sign up for a free credit counseling session with a certified credit counselor to find out whether you're a good candidate for a so-called DMP.

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Debt Settlement

Debt settlement involves getting agreements from all of your creditors to pay them less than the total balance owed in full satisfaction of the debt. This can be a good alternative if you don't have a large number of individual creditors (as you'll have to strike a deal with each one of them separately) and have the ability to come up with enough cash to pay off your creditors. While some creditor will entertain short payment plans for settlements, it's generally easier to get better terms for your settlement if you have the ability to make a lump sum payment once an agreement has been reached. Keep in mind, though, that settling your debts can increase your tax liabilities when you file your income tax return.

Do nothing

If you don't have expensive property that you're worried about losing and your income is limited to social security or social security disability, doing nothing is a possible course of action. While creditors can still call you, send you letters, and even file a lawsuit against you, they can't actually collect anything from you. Even with a judgment against you, your income is protected and you are collection proof.

How do I know what's best for me?

Knowledge is power and you're already doing the right thing by reading up on your options. Ultimately, the best course of action depends on your specific situation and your short term and long term goals. One thing to keep in mind is that there are certain eligibility requirements for bankruptcy relief. If you make too much money, you're not able to do a so-called straight bankruptcy under Chapter 7 of the Bankruptcy Code and would have to commit to a repayment plan in a Chapter 13 bankruptcy instead. Also, if you had a bankruptcy filing in the last 8 years, you may not be eligible to file again.

The good news is that you can not only read up about your options online, you can actually meet with professionals whose job it is to help you figure out the right course of action - for free. Since you're only investing time, sign up for credit counseling to learn more about your non-bankruptcy options and schedule a free consultation with a bankruptcy attorney in your area. Doing both will give you the most comprehensive overview of your options, along with some personalized recommendations. And, as long as you sign up for credit counseling with one of the approved providers, you can use the course to satisfy your pre-bankruptcy credit counseling requirement if you end up filing bankruptcy.

Written By:

Attorney Andrea Wimmer


Andrea practiced exclusively as a bankruptcy attorney in consumer Chapter 7 and Chapter 13 cases for more than 10 years before joining Upsolve, first as a contributing writer and editor and ultimately joining the team as Managing Editor. While in private practice, Andrea handled... read more about Attorney Andrea Wimmer

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