Bankruptcy Alternatives Blog

Do it Yourself Debt Settlement as a Bankruptcy Alternative

If you owe a lot of money on credit cards, bank loans, and other debts, you can file for bankruptcy or, as a bankruptcy alternative, you can try to settle your debts yourself.

Do-it-yourself debt settlement is very easy to understand. Instead of hiring a bankruptcy attorney to file bankruptcy for you, or instead of hiring a debt management company or credit counselor to negotiate with your creditors on your behalf, you can make a deal with your creditors directly.

Here’s how it works: First, you make a list of everyone you owe money to (names and amounts). Then, you make a personal budget to determine what you can afford to offer the creditors.

Let’s say you have two credit cards, and you owe $3,000 on each of them ($6,000 in total), and you are behind on your payments. Let’s also assume that it’s possible for you to borrow $3,000 from friends or family, or perhaps raise $3,000 by selling your old car or some other asset.

You could contact each creditor and offer to pay them a lump sum of $1,500 if they will agree to write off the balance of what you owe. If you are already behind on your payments, and if they believe your only other option is to file for personal bankruptcy, they may agree to accept something now, rather risk getting nothing if you file for Chapter 7 bankruptcy.

For this strategy to work, you must have something to offer your creditors now. If you have no up-front cash to offer them, it is unlikely they will accept an offer. However, if you have some money, it may be possible to settle your debts for less than the full amount owing, and avoid bankruptcy. Making a settlement will still have a negative impact on your credit report, but with all of your debts dealt with you can begin saving money and working to re-build your credit.

See also credit counseling, personal bankruptcy, bankruptcy, Chapter 7 bankruptcy, bankruptcy alternatives