Debtors have several alternatives to bankruptcy, especially if they are considering filing for Chapter 7 bankruptcy. In a Chapter 7 bankruptcy case, most assets are liquidated to help pay down debts. However, debtors are advised to exhaust all available alternatives before filing for bankruptcy. They should also be aware that out-of-court agreements with creditors or debt counseling services might provide better alternatives to a bankruptcy filing.
Creditors also prefer debtors not going into bankruptcy since the process is long and may significantly reduce the amount of the debt that will be repaid to them. Some creditors may agree to modify the terms of debt accordingly.
Corporations, partnerships, and sole proprietorships should consider declaring bankruptcy under Chapter 11 to remain in business and avoid liquidation. Under Chapter 11, debtors may seek adjustments of debts, which may involve reducing the debt or extending the time for repayment.
Individual debtors may also consider filing for Chapter 13 bankruptcy, which usually allows them to save their homes from foreclosure. Chapter 13 bankruptcy allows the debtors to “catch up” past due payments through a payment plan.