4 Bankruptcy Alternatives for Lower Income Households

by Bill on April 23, 2012

Because of the financial mess that the economy became since 2009, many households are unable to maintain their debt. Low income families have a special problem with debt management after a financial downfall. Some people choose bankruptcy to resolve credit issues, but is bankruptcy the only way out of a debt crisis. I found four ways people with little or no income can manage debt without resorting to bankruptcy.

Debt Counseling

Debt counseling is conducted between the debtor and a reputable debt counseling service. A debt counseling service helps do two things for you to avoid bankruptcy:

  • financial education in matters of legal and money issues
  • help create plans for repayments and budgets you can live on

The National Foundation for Credit Counseling maintains a database of approved counseling services across the United States. The U.S. Department of Justice also has lists of approved agencies you can work with.

Debt Management Plans

The goal of this alternative to bankruptcy is to consolidate monthly payments while gaining reductions in payments and interest from unsecured debt. In short, you may find yourself borrowing from Peter to pay Paul and it can get tricky. These plans may involve borrowing against your home equity to eliminate your credit card debt. That’s why caution is needed, and I would use this measure as a last resort. If you default on the new payment schedule you could loose the home.

Debt Restructuring

Restructuring debt can be an alternative to bankruptcy. If your creditors are willing to negotiate with you over the debt and payment plan, go this route. Debt restructuring involves:

  • negotiating a reduction of debt
  • reductions or changes in interest rates
  • payment extensions

Most times if you have secured credit items (homes, cars, collateral) creditors will be willing to look at debt restructuring to avoid bankruptcy. The cost of recovery and repossession is higher than talking.

Do Nothing

Now, what if you have no income or no property? The option of doing nothing is a viable bankruptcy alternative because they cannot collect anything. You as debtor must prove lack of income and property to make this work in court. A word of caution over this method though as once income or property becomes available the creditors will restart collections.


As usual lately here’s a couple of places to help you read up on the topic:

University of Missouri: Money Matters Research Trends

Oklahoma State Bar Association: Is There An Alternative to Bankruptcy


William Swan, writer

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{ 1 comment }

Kathryn April 24, 2012 at 1:17 am

These are great alternatives and I want to thank you for the help especially to those who have low income households..

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