Bankruptcy Alternatives for Low Income

Because of severe financial downturns in the economy, many people find themselves unable to maintain debt loads; this is especially true for low-income individuals. Some people choose bankruptcy to resolve credit issues, but there are other alternatives. People with low income or no income can find methods to 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 provides financial education and can help with creating plans for repayments and budgets. The National Foundation for Credit Counseling maintains a database of approved counselors across the United States. The U.S. Department of Justice also maintains lists of approved agencies that debtors can work with.

Debt Management Plans

The goal of this alternative is to consolidate monthly payments while gaining reductions in payments or interest from unsecured debt. These plans may involve borrowing against home equity to eliminate credit card debt. Caution should be used with this alternative because the home becomes collateral against the new loan and could be lost if the new payment schedule is not met.

Debt Restructuring

Restructuring debt can be an alternative to bankruptcy if the creditors are willing to negotiate with the debtor. This alternative involves negotiating a reduction of debt, interest rates and payment extensions. This alternative is most often used with secured items, such as cars or homes, because creditors want to avoid the cost and time involved in repossession and recovery of the debt.

Do Nothing

This option is available to low income persons with no income or property because there is nothing a creditor can collect. Proof must be provided by the debtor to show lack of income and property. Caution should be used with this alternative because once income or property becomes available creditors can restart collection efforts.