Bankruptcy Alternatives

Consumer credit counseling

Credit counseling may be an option if an individual’s debts are limited to credit cards or the non credit-card debts can be resolved separately once credit cards are under control,    Credit counseling results in a debt management plan.   The plans typically require payment of all credit card debt, often with interest.   The payment required is based upon balances due as opposed to ability to pay.

Credit counseling agencies negotiate up to five years to pay the credit card debt (some agencies offer only shorter plans). Creditors often reduce or eliminate interest. They may agree re-age accounts stopping late charges and other fees. The negative effect on credit can be lessened by ceasing reporting of late payments. Participation in credit counseling is reflected on a credit report and often lowers a credit score. Program rules likely prevent or discourage the use of credit cards, new or existing.

Credit counseling agencies are not motivated solely by a client’s best interests. Often owned by the credit card companies or sponsored by them, even in circumstances where credit card companies do not directly own the agencies, they typically provide the funding that allows agencies to continue. Credit counseling arrangements work because credit card companies offer terms to make it easier for and incentivize debtors to participate in credit counseling. Terms may include eliminating or reducing interest charges, reducing payments, eliminating late charges and other fees and paying a percentage of the monies paid to them by credit counseling clients to the credit counseling agencies to cover their expenses. Creditor may offer different terms for the payment of debt or refuse to participate in credit counseling (it is uncommon for a credit card company not to participate).

We recommend whose problems might be resolved by credit counseling that they speak with a credit counselor to compare options available for a Debtor. Some credit counselors company will refer clients to an attorney if they cannot offer an arrangement to the debtor that benefits the debtor and is likely to work.

A credit counseling agency should be carefully chosen. The agency should be an accredited nonprofit entity, be accredited and should not charge the debtor for their services.   Checking for complaints is a good idea. It is important to avoid accidentally entering into a debt settlement program. Debt settlement organizations present their plans in a way that debtors can mistake these programs for credit counseling. See below for a discussion of debt settlement and why it is not usually recommended.

For a few, credit counseling is a good alternative to bankruptcy.  A credit counselor should be able to describe payment terms offered by each creditor. Consider carefully to avoid entering into an unrealistic program. Once the program is set up, it is difficult to reduce payments. Some credit counseling agencies will place debtors in credit counseling programs that have a limited likelihood of being completed. If the program does not leave money to pay necessary expenses or requires too much sacrifice, it is unlikely to be completed.

While most are willing to make some cuts to re-pay debt, a bare bones budget that does not allow for anything enjoyable or unanticipated expenses will not likely lead to success.

Debt settlement

A debt settlement program is almost never suitable. In a debt settlement program, payments to the entity assisting with the program.  These payments are not paid to creditors as received. Instead, they are accumulated.

Debt settlement companies contact creditors and attempt to make a lump sum settlement arrangement with the creditor as adequate funds are accumulated. As time passes, the amount a creditor will accept in payment of the debt in a lump sum typically decreases. In theory, as increasing amounts are accumulated to pay an individual’s debts and creditors requirements decrease, there will be a point at which the amount accumulated and the amount required to settle all of the debts magically coincides and the debtor can settle with all of the creditors.

There are a number of problems with this arrangement. Of great concern is that many of those we speak to who are or have been in this type of program have no idea how the program is supposed to work. These people are often under the impression that they are in a more traditional credit counseling program and creditors are receiving a monthly payment. It is very difficult for debt settlement companies to predict the results of their programs. There is little incentive for creditors to co-operate.

Clients in debt settlement programs may continue to receive calls and letters, be instructed to exercise their rights under various credit protection laws or forward their bills and other correspondence, eiher directly or unopened. Sadly, this can have the effect of provoking creditors to more aggressive action.   Cut off from all contact with the Debtors and offered only an unacceptable settlement, creditors become frustrated.. The debt settlement companies rely on the creditor’s desperation, to cause creditors to accept less.

Unfortunately, this desperation can prompt frustrated creditors to file suit.   Whether a lawsuit is filed, the effects of the debt settlement on the credit score are often devastating. All accounts go into default and continue to, reported later and later. Some believe the problem has addressed until served with a lawsuit. Or, wait, uncertain as to timing or result. Meanwhile, Debtor’s credit score gets worse, theoretically encouraging creditors to accept less.     Debt settlement companies often take both up front fees and monthly fees from the monthly payments made by the Debtors and may also take additional fees based upon savings to the debtor.

These programs are typically far more harmful to the Debtor’s credit score than bankruptcy would be. They are also fairly ineffective as a bankruptcy avoidance method. These programs are almost never recommended.  We can explain why, based upon your situation in a consultation. Our bankruptcy attorneys can review documents pertaining to any programs, to identify, discuss advantages and disadvantages, and compare it to other alternatives, including bankruptcy.

Self help

There are many obstacles to this approach, particularly for Debtors with multiple accounts. Creditors may not maintain staff to accommodate negotiations with individuals.     Collections offers little alternative to payment in full or minor concessions such as a late charge waiver, a  temporary lower payments.    Debtors requesting assistance are often referred to credit counseling. Once accounts reach a point where creditors will agree to a reduced balance in a lump sum settlement, the account is in collections and credit has been severely damaged. There are also often tax implications to debt settlement. Our attorneys can discuss issues surrounding attempts to resolve debt issues yourself including advantages, disadvantages and alternatives.


Denial is not a legitimate alternative to bankruptcy. However, we often find that clients have been employing this perfectly understandable strategy.       Anyone employing this strategy, speak to a qualified attorney.   It costs nothing but time to discuss the financial situation with one of our attorneys. Timely good advice prevents missteps that make the situation worse.   Many clients find that an option is available to address their particular situation. It is not necessary to suffer without information about how to resolve financial problems.

Please call our offices conveniently located in Spring Hill, Florida.     Our office number is 352-686-6200.     Get peace of mind.    Know your rights.