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Bankruptcy Alternatives

Bankruptcy Alternatives

As a way of avoiding bankruptcy, here are some bankruptcy alternatives you can consider:

Getting a second mortgage or a home equity line of credit to pay off debt.

Typically, getting a second mortgage in order to pay off credit card debt can be and often is highly problematic. Consider the pros and cons to this option:


You may be able to avoid filing for bankruptcy.

Using second mortgage money to pay off debt that cannot be wiped out in bankruptcy may make sense.


Your debt becomes attached to your house, so if there are any further issues then you may end up losing your home. In other words, by obtaining a second mortgage to pay off credit card debt, you are adding an element of risk of loosing your property. In my opinion this option is often a terrible idea.

There is something perverse about borrowing against your home in order to pay off other borrowed money that is not attached to your home.

Using a debt settlement or debt consolidation companies:

I personally can’t think of any reason to use one of these companies. I would not consider this one of the viable bankruptcy alternatives.




They negotiate with your creditors. You can do this on your own.

They typically charge you a lot.

There are ample complaints regarding these types of companies to FTC, BBB, and online.

Credit card companies do not have to listen and negotiate with these companies. If you are instructed to stop making payments on your credit card debt, then you are instructed to default on those debts. If you default on your debt, then you are much more likely to be sued.

“Dave Ramsey” Approach

Another bankruptcy alternative is the Dave Ramsey approach. Essentially, Dave Ramsey proposes that you follow a budget, become intense and focused about paying off debt. Consider getting a second job, eat “rice and beans, beans and rice” and contribute your entire disposable income toward your debt. This has recently become one of the more popular bankruptcy alternatives.


By continuously living below your means you create a habit of living below your means which in turn is likely to keep you out of debt trouble.

You experience the consequences of incurring excessive debt, which is likely to discourage you from incurring debt in the future.


Your income may not be enough to pay off your debt. In other words, no matter how hard you work and how diligent you are about saving, you will not save enough to pay off your debt.

You may not have enough time to pay off debt. For example, you may be facing a garnishment action or the foreclosure of your property. If your wages are about to get garnished or if you are about to loose your property, you do not enough time to live according to a budget and save up to pay off debt. You have to act and act immediately to protect yourself.