Bankruptcy Alternatives – 6 Smart Ideas to Avoid Bankruptcy

bankruptcy alternatives to avoid bankruptcy

Bankruptcy Alternatives – 6 Smart Ideas to Avoid Bankruptcy

Always consider bankruptcy alternatives, since it’s supposed to be a last resort. The key is of course you want to avoid bankruptcy. I’m a bankruptcy lawyer in Santa Clarita, CA. I’ve helped tens of thousands of people over the past twenty years. I’ve reviewed thousands of budgets with people in distress, provided my neighbors financial advice, and each time, provide options and bankruptcy alternatives to people for them to avoid bankruptcy.

A word about options: The thing about options is they all have some upside and yes, downside.  It can be very easy to see the cons with something new while overlooking the pros. You likely thought of this before then quickly dismissed it. But if you’re going to consider options, I mean really consider options, then that implies that you’re willing to look at things anew. You should be ready to try to distance yourself from emotion and look at and weigh things analytically, rationally, and logically.

With that, let’s review some bankruptcy alternatives…

Stay Current

It goes without saying, but let’s say it anyway: staying current is an option. You did it before. You know it’s in the universe of possible. However, something probably changed. So, the pros:  if you pay your minimums on time, your FICO credit score will look nice, and this is the known, the familiar option. However, even the best has its drawbacks. With a loss of income (or increasing credit card balances), the minimum payments could be unaffordable. And even if you could afford them, it’s paying only interest. It will be years or decades until the debt is actually eliminated.

Doing Nothing is a Bankruptcy Alternative

Second, you have the option to not pay your debts as they come due. That’s right: do nothing! Hey, it’s an option. Not necessarily a wise one, but when brainstorming, let’s consider even not paying the debts. Chances are, just reading that made your heart skip a beat and your brow sweat. However, it’s true: you have the option to not pay the credit card debts.

The bad part is immediately obvious. This feels wrong. You’ll get calls. You’re not a deadbeat. And eventually, you’ll get a lawsuit which turns into a judgment, which can then be a wage garnishment. Doing nothing is rarely a long-term solution.

But, it does come with an upside: it’s free. You save the money you were giving to the debts each month.  Then, with the money you’re not using pay interest, you can pay rent, food, car insurance, and basic necessities. Those are some powerful ‘pros.’ Again, this is not usually a viable answer, but it may buy time as you move into another bankruptcy alternative.

Debt Consolidation Programs

Third, there are debt consolidation programs. They’re also known as debt settlement or debt negotiation, but the idea is the same: you pay one payment to someone and they distribute it to your debts and they are all magically are happy accepting less than you would’ve given them directly.

You can guess the perils of debt consolidation: it doesn’t work. The debts don’t get paid every month. There is nothing to force them to participate. Generally, this feels to your credit cards like the last option: they’re not getting paid. This hurts your credit. Then, the credit cards sue you, you call the middleman up, and they say, “sorry, we can’t help you, you need to file bankruptcy.” That’s the big problem: debt consolidation doesn’t protect you from lawsuits.

Debt consolidation doesn’t protect you from lawsuits.

On the other hand, debt settlement places do have their upside. You get to avoid bankruptcy (at least in the short-term). You make an affordable payment. It’s so affordable you can’t believe it’ll work. And that’s the ultimate catch: you can never get it to work long enough to actually reach the finish line and goal of being debt-free.

Note: If you’re going to seriously consider debt consolidation, consider an option which may be better, provides a set number of payments, no chance of the payments going to waste, and best of all, which allows you protection from lawsuits.

Slash Your Budget and Spending

It may go without saying, but one option is to really cut back on what you spend money. Do you really need Netflix and Spotify? How about those Starbucks? Eating out is a huge way to spend money unnecessarily when you could more affordably make something yourself from groceries. The pros here are maybe it can help you avoid bankruptcy so you can really pay down your debt. The cons are maybe you’ve already cut your budget and there’s nowhere else to cut.

Liquidating Something to Negotiate it Yourself

Generally, Debt Settlement as Bankruptcy Alternatives

You can liquidate your own assets for debt negotiation and debt settlement. All that means is if you have assets, you can sell them and then use that money to offer to pay the debts as a settlement offer.

Generally, the advantages of these bankruptcy alternatives here are to avoid bankruptcy, and get the goods and services on your credit cards at a discount. The disadvantages would be you no longer have the asset, and sometimes debt forgiveness can be reported income to the IRS for your next tax return.

Also, beware settling some debts but not all. The remaining ones can still sue you and then you’ll wish you had the funds back you gave to the previous ones since you may need to file bankruptcy.

Cashing out Retirement

Pro: you clean out your future savings for when you’re old and no longer working to settle debts and the present debts and pressures are gone, and it also avoids bankruptcy.  Con: you cleaned out your retirement and the future ‘you’ is struggling financially and is really upset at the ‘present’ you.

Sell/Refinancing a Home as Bankruptcy Alternative

If you have a home in California and still haven’t sold it and moved to a different state (property values are super high in 2021), you can sell that house and then use the equity cash to negotiate your own debts. Alternatively, you can refinance the home, take out some equity and settle your own debts.

Pros: all the ones above in the ‘general’ section. Cons: the ones in the ‘general’ section, including tax consequences. Plus you now have a new debt secured by your home as collateral to replace the old debt you couldn’t afford. This often doesn’t make sense, but your mileage may vary.

Get Money from a Rich Relative

Yes, there are some people who have a parent or uncle that would be willing to help them out in a pinch. And, if you got yourself a lot of debt due to some emergency, that’s a pinch.  Pros: all the same ones above in the ‘general’ section.

Cons: the emotional strain on a relationship where money is involved. Is it a loan? What strings are attached? Can you borrow enough to settle all the debts? If not, you may be forced to file bankruptcy anyway, and you burned through Aunt Peggy’s money and goodwill also.

And finally, after all the alternatives, bankruptcy

This is also an option. You know the cons already: it goes on your credit report for up to 10 years. You can no longer use your current accounts. It may be challenging to rent housing, or purchase a home or car right after you file.

But bankruptcy also has advantages, and rebuttals to the cons maybe you didn’t know. First, it is possible to re-establish credit after bankruptcy. Second, in many cases it can even improve your FICO score. Third, it’s fast. It’s an upside that you can often be done with all your debt in a matter of month without having to pay it.

Fifth, it’s cheap, compared to how much debt you have and would’ve settled or repaid in a debt consolidation program. Last, in most cases, you can keep all your things, including your car (again, your mileage may vary, meet with an awesome bankruptcy attorney).


You’re faced with a difficult choice. The good news is there are options. The hard part is now you have to figure out which is the least bad for you, given your unique situation.

I’m a skilled bankruptcy attorney and specialize in weighing financial options as they relate to resolving debt issues. Let’s meet and go over these options as they pertain to you and your one-of-a-kind circumstance.

I promise to give you the straight, honest truth about your pros and cons, and what I think is best for you after helping you weigh them out.  I hope to hear from you.

    Hale Andrew Antico was chosen by his bankruptcy attorney peers to be President of SoCal's largest consumer debtors lawyers' association two times, and has been voted best Santa Clarita bankruptcy attorney by our SCV neighbors four times. Arrange a no-obligation consultation by Zoom or in-person to learn your options for a fresh start.

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