Debtors usually file for bankruptcy for two reasons: to protect themselves from creditors and to get rid of unsecured debt. The latter has become more and more popular as people rack up credit card debt and fall victim to the tanking economy. But bankruptcy isn’t the only way out—in fact, it should be more of a last resort than a strategic move. There are a number of ways you can write off debt without having to file for bankruptcy. This guide offers a few suggestions.

Gather Your Debt Information

Sometimes debt just seems overwhelming—most people don’t actually have to file for bankruptcy to get out of them. Take all your financial statements and calculate your total debt against your paying capacity. You may find that you’re actually making enough to pay them off. Even if you’re a bit short, it’s likely you’ll be able to negotiate a deal with your creditors so you don’t have to file for bankruptcy.

Try Consolidating Your Debt

Two of the most common alternatives to bankruptcy filing are debt consolidation and debt settlement. Debt consolidation means combining all your debts into one loan with a lower interest rate, making it not only cheaper but also more convenient since you’re only answering to one creditor. The same thing happens when you file for bankruptcy under Chapter 13, but in debt consolidation, you pay a monthly service fee to the company that deals with your creditors.

Look Into Debt Settlement

In a debt settlement, you get your creditors to agree to a discounted lump sum payment. This means some of the debt will be discharged, just like when you file for bankruptcy. A debt settlement can get as much as 75% of your debt written off. The catch is that you have to settle with each creditor individually, whereas when you file for bankruptcy, you reach an agreement with all of them. A debt consolidation company can help you bargain with creditors for the best settlement terms.

Ask About Mortgage Workouts

If you’re one of the thousands of homeowners facing foreclosure, there are lots of ways out you can consider before you file for bankruptcy. Talk to your lender about getting your loan modified, getting a refinance, or doing a short sale of your home. Many of them would rather work things out than foreclose or have you file for bankruptcy. Not all of them can work for you, but they can help you stay in your home or at least reduce the damage compared to a bankruptcy filing or foreclosure.


The writer of this article is Wystan North..