What Are the Alternatives to Chapter 7 Bankruptcy?
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Struggling with debt doesn’t always mean you have to file for bankruptcy. There are several alternatives — like credit counseling, debt management plans, consolidation, or settlement — that may help, depending on your situation. These options can offer relief, especially if you have steady income or only need short-term support. But if you’ve tried other solutions and still can’t keep up, Chapter 7 bankruptcy might offer the fastest path to a true fresh start.
Written by Attorney Andrea Wimmer. Legally reviewed by Jonathan Petts
Updated December 20, 2025
What Are the Best Alternatives to Bankruptcy?
Having overwhelming debt is scary — but you’re not stuck. Bankruptcy is one option, but it’s not the only one. Depending on your situation, there may be other ways to take control of your finances and move forward.
Here are the most common bankruptcy alternatives and who they tend to work best for:
Ruthless budgeting so you can pay bills and debts as agreed, sometimes using strategies like the debt snowball or debt avalanche methods
✅ Best for financially-savvy individuals who have extra income each month or can reasonably cut expenses to free up cash for debt payments.
❌ Not ideal if you've cut your expenses to the bone and more money is going out each month than coming in. In that case, budgeting won't be enough to climb out of debt.
Credit counseling from a nonprofit agency that offers free advice and a full review of your debt relief options
✅ Best for anyone who needs help understanding their options and wants professional, judgment-free guidance.
❌ Not ideal if you’re mainly struggling with secured debts (like a mortgage or car loan), which credit counselors typically can’t help reorganize.
A debt management plan (DMP) that allows you to lower your interest rates, consolidate your monthly credit card payments, and get out of debt in a few years
✅ Best for people with a steady income who want to pay off high-interest credit card debt more efficiently and don’t mind closing some credit accounts.
❌ Not ideal if you’re dealing with secured debts or need help with other types of loans — DMPs only work with certain unsecured debts like credit cards.
A debt consolidation loan that lets you combine multiple debts into one, ideally at a lower interest rate
✅ Best for individuals with decent credit who qualify for lower rates and want a simpler, more affordable monthly payment.
❌ Not ideal if your credit score is too low to get a better rate, or if most of your debt is secured (like a car loan or mortgage), which usually can't be consolidated.
Debt settlement, where you or a company negotiate with creditors or collectors to settle your debt for less than you owe
✅ Best for highly motivated individuals with mostly unsecured debt (like credit cards or medical bills) and access to a lump sum of cash, such as a tax refund.
❌ Not ideal if you don’t have a chunk of money to offer upfront or if your debts are current, as creditors are less likely to settle unless the account is seriously past due.
Budgeting To Pay Accounts as Agreed as a Bankruptcy Alternative
If you haven't yet taken a good look at your budget, it's time. The goal is to see how much money you have coming in and how much is going out each month.
That's income minus expenses and debt payments. If you're in the black and there's money left over each month, you're in luck.
If you're in the red, you probably need more than a good budget to get out of debt successfully. That is, unless you can significantly increase your income or decrease your expenses.
Of course, if this were as easy as it sounds, you probably wouldn't be reading this article. So, let's take a look at what other bankruptcy alternatives are out there that can actually help you make ends meet, not only in the long run, but in the short term, too.
Credit Counseling as a Bankruptcy Alternative
Credit counseling is a great place to start for pretty much anyone struggling with debt. Most nonprofit credit counseling agencies offer free consultations, so you have nothing to lose by speaking with a credit counselor.
Credit counselors are nonjudgmental financial pros who help you understand your full financial picture. They can walk you through your income, expenses, and debts to help you figure out your best next steps — whether that’s creating a budget, starting a debt management plan, or exploring other options. Many people find that just talking to someone who understands the system can be a huge relief.
Upsolve can connect you with an NFCC-accredited nonprofit credit counseling agency for a free consultation.
Debt Management Plans as a Bankruptcy Alternative
One of the solutions a credit counselor may offer you is a debt management plan (DMP). A DMP allows you to combine multiple credit card payments into one monthly payment, often with a lower interest rate. The credit counseling agency works directly with your creditors to negotiate better terms and manage the payments on your behalf.
Most DMPs take about 3–5 years to complete, and during that time, the credit accounts included in the plan are typically closed. This option can be a good fit if you have steady income and want to pay off high-interest credit card debt in a more structured and affordable way, without filing for bankruptcy.
Debt Consolidation Loans as a Bankruptcy Alternative
Debt consolidation can be a helpful option if you have enough income to pay your debts but struggle to keep track of multiple payments each month. By rolling several debts into one loan or credit card balance transfer, you can simplify repayment — and if you qualify for a lower interest rate, you might save money over time.
Keep in mind that the best consolidation offers, like low or 0% interest rates, are usually only available to people with good credit. If your credit score isn’t where you’d like it to be, a debt management plan through a nonprofit credit counselor could be a better fit.
Debt Settlement as a Bankruptcy Alternative
Debt settlement involves negotiating with your creditors to accept less than the full amount you owe. If they agree, you make a reduced payment — often in a lump sum — and the account is considered resolved. This can be a good option if you don’t have too many creditors and you have access to a lump sum of cash, like from a tax refund or savings.
Why would creditors or debt collectors agree to settle? Because they’d rather get something than risk getting nothing if you're unable to pay at all.
Some creditors may agree to short-term payment plans, but lump-sum offers tend to be more successful. Keep in mind that any forgiven debt may be considered taxable income, which could increase your tax bill.
What if You Do Nothing About Your Debt?
In some situations, doing nothing may be a realistic short-term option. If you don’t own valuable property and your income comes only from protected sources like Social Security or Social Security Disability, creditors may not be able to collect from you — even if they sue and get a judgment. This is often called being “judgment-proof” or “collection-proof.”
Creditors can still call, send letters, and try to collect, but they can't take money from income that’s legally protected. That said, ignoring debt doesn’t make it go away, and it could affect your credit and cause stress. Some people in this situation choose to wait it out, while others explore low-cost solutions like bankruptcy for a fresh start.
When It's Time To Consider Filing Bankruptcy
Most people try every possible option and spend years trying to dig their way out of debt. If you've tried several alternatives but just can't seem to make progress on your debt-free journey, it might be time to seriously consider filing Chapter 7.
Most people have heard that bankruptcy is or should be "a last resort." But as a bankruptcy nonprofit, we've seen people needlessly suffer for years trying to repay high-interest debt that just keeps growing. In fact, many of our users say their biggest regret was not filing sooner. And here's why:
✅ Filing Chapter 7 is one of the fastest debt relief options. Using a debt management plan, consolidation loan, or a budget with a debt repayment strategy often takes people years to get out of debt, if they even work. Chapter 7 takes only 4–6 months.
✅ Chapter 7 gives you a total fresh start and full financial reset. Dealing with debt for years can be stressful and disheartening. Getting a fresh start with Chapter 7 presses the reset button on your finances, reduces stress, and often helps people feel more confident to deal with their money moving forward.
✅ Chapter 7 wipes out the most common debts. Credit cards, medical bills, personal loans, past-due utility bills, and payday loans can all be wiped out through bankruptcy. If you're in over your head on a car loan, you can get rid of that too (but you'll have to give up the car). Keep in mind that some debts can't be discharged in bankruptcy.
If you want to join the more than 20,000 Americans who have wiped out over $950 million by using Upsolve, take two minutes to see if you're eligible to use our free filing tool.
