A Debtor’s Alternatives to a Bankruptcy Filing

Take no action

Filling a bankruptcy will prevent a creditor from seizing property. In most times, creditors are reluctant to initiate legal proceedings against a debtor who has no assets as it may be costly. This might be the alternative to take.

Self-money management

Through the creation of a personal budget and debt reduction, a debtor can manage his debt, thus avoiding a bankruptcy filing.

Negotiation with creditors

Many creditors prefer a negotiation of settlements and receive a fraction of their money than get nothing at all. This alternative is suitable where the debtor has enough assets from liquidation. The alternative is preferred as it gives a debtor more time to rearrange his position. A major advantage of this settlement is that it avoids negative publicity, is less time-consuming, there is greater protection of the business information, cash flow flexibility is enhanced, and greater certainty of debtor business control.

This alternative, on the contrary, is discouraged as one ends up receiving a fraction of his funds. This option gives no protection against the secured parties; there is an inability to transfer assets, a lack of provisions that deal with under secured creditor claims, and there is a lack of a legal way to command dissenting creditors to cooperate

Debt consolidation

This involves borrowing money at a low-interest rate from a lender to repay high-interest rate debts.