Apart from filing bankruptcy to eliminate unsecured debts and/or modify secured debts, you may also have the following options.
Debt settlement/workout:
A debt settlement, also known as a debt workout, is a negotiation for the reduction of a percentage of the unpaid principal balance of a debt, extension of the time in which to payoff the debt to lower the monthly payment, a reduction of the interest rate to lower the monthly payment, or some combination thereof. People who choose this option may attempt to negotiate the settlement with their creditors on their own, or through the use of a professional credit counseling agency. A debt settlement will show on your credit report as a debt write-off or charge-off (the terms are synonymous), and will affect your credit score, but not as badly as a bankruptcy. However, you may start rebuilding your credit history and credit score only after your payment plan has been successfully finished. In bankruptcy, on the other hand, all unsecured debts such as credit cards are eliminated, and you may start rebuilding your credit without any delay.
Debt consolidation:
Debt consolidation consists of a loan in one of two forms: a personal, unsecured line of credit; or a loan secured by some type of collateral such as a house, car, or bank account. These types of loans are offered by banking institutions and credit counseling agencies. Using a secured loan to pay off unsecured debt is highly risky and unadvisable because if you default on that loan you may lose the collateral with which it was secured.
Credit card balance transfer:
It may be possible for you to transfer balances from a high rate, high balance credit card to one with a lower rate and balance. Most credit cards will invite you to transfer balances to their cards at a low, temporary rate. However, there are also balance transfer fees you should clarify before using this option.
Demand verification of debt:
If you are in collections or foreclosure, you have the right to demand verification of the debt. Verification of debt means documentary proof provided by the creditor that the creditor is owed the debt, as well as the amount of the debt owed. Creditors who cannot provide such verification cannot collect or foreclose on you.
Sale of assets:
Even while in collections or foreclosure, you still owe your assets. If you are willing to part with some of your personal belongings, you may consider selling them to pay off at least part of your debts. While in foreclosure, you can still sell your home or condo to a willing buyer. Even though the buyer will take the property subject to the foreclosure, meaning the buyer will have to cure the default before the home is sold at the foreclosure auction, some people can afford to do so.
Deed in Lieu of Foreclosure:
This technique is a transfer of title to your home to the bank in exchange for cancellation of the foreclosure and debt. While this still results in a debt write-off showing up on your credit report, it is still better than a foreclosure or bankruptcy on your report.
Loan modification:
If you own your home, you may modify your loan to reduce your principal and/or interest, or to extent the time in which you have to pay it off. You should not pay someone to do this for you - there are HUD counselors who can modify your loan for you for free. Otherwise, you can negotiate a modification yourself. To find a HUD counselor, go to www.makinghomeaffordable.gov.
Reduce expenses:
If you take a hard, honest look at your lifestyle and expenses, you will most likely find ways to cut back and find more money from your present cash flow with which to pay off debts or at least increase your debt payments. Cooking at home instead of eating out, using public transportation instead of paying for gas and parking, moving in with a roommate or family member instead of paying higher rent to live alone, and reducing expenditures on alcohol and other luxuries are all ways to find extra cash. Start keeping track of all of your expenses, item by item, and you may be surprised at how money you're wasting on things you really don't need.
