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Alternatives to Bankruptcy

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Many Michigan families are facing financial trouble like they have never seen before. With bills piling up and income options scarce, filing for bankruptcy may seem inevitable. While a bankruptcy can be a smart way to get a fresh start, it may not be appropriate for every family. Find out about the alternatives to bankruptcy and how you can work with a bankruptcy attorney and your creditors to keep from needing to file a petition.

Why Might You Avoid Filing Bankruptcy?

Bankruptcy is nothing to be feared. For many families, it provides much-needed relief from creditors, collections agencies, interest, and penalties. But it isn’t the right choice for everyone. You might want to avoid filing bankruptcy if:

  • Most of your debts are nondischargeable (such as student loans, recent tax debts or a mortgage)
  • You expect to need to take out a new loan in the next few years (such as a new mortgage or a vehicle loan)
  • You just made a big purchase (like a new home, vehicle, or cash advance)
  • You need to shelter non-exempt personal property (and don’t qualify for a Chapter 13 bankruptcy payment plan)
  • You still have a high credit score
  • You believe your current financial situation is temporary (such as being furloughed due to COVID-19)
  • You owe significant amounts to family members or other flexible creditors

You shouldn’t let fear or stigma push you away from getting debt relief, but before you file, you should sit down with bankruptcy lawyers in Metro Detroit for a free consultation to see how to avoid bankruptcy, and whether it is a good idea to do so.

What Are the Alternatives to Bankruptcy?

If you and your bankruptcy lawyer determine you have too much to lose by filing for bankruptcy, or not enough to gain from a discharge, you may be wondering how else you can get debt relief, stop the creditor calls, and avoid foreclosure or repossession. The good news is that there are plenty of non-bankruptcy options to manage and pay off your debts.

Budgeting and Lifestyle Changes

The first option to avoid bankruptcy is to adjust your standard of living. This option works best for debtors who are living beyond their means or have never looked at their expenses before. By taking a close look at all your income and expenses and creating a budget for your lifestyle moving forward, you may be able to pay down your debts and avoid filing for bankruptcy.

Apply for Relief When Available

If your financial situation is because of a specific hardship -- such as an injury, illness, or COVID-19-related layoff -- or if you fall within certain income thresholds, you may qualify for federal, state, or philanthropic relief. The most common debt relief programs right now apply to rent, mortgage, and unpaid utilities bills. However, depending on your specific creditors and your circumstances, there may be others. Before you consider taking more drastic action, talk to your bankruptcy attorney to see if there are programs you qualify for that will reduce your monthly obligations or postpone certain debts so you can focus on paying off others.

Negotiating a Debt Repayment Plan

If most of what you owe is consumer debt -- such as medical debt or credit card accounts -- your bankruptcy attorney may be able to negotiate with your creditors on your behalf to create a debt repayment plan that works with your budget. These “unsecured” creditors have a lot to lose if you file for bankruptcy, so they may be willing to extend your payment period, reduce your monthly payments or waive interest and late fees if they know they will get paid.

Refinancing to Consolidate Debt

It may seem illogical to take on more debt when you are considering filing bankruptcy, but not all debt is the same. Interest rates on some types of debt, like home equity lines of credit, are significantly lower than others, like credit cards. By refinancing your property you may be able to pay off higher-interest debts and avoid accumulating multiple late penalties every month. Your bankruptcy attorney may also be able to leverage your refinancing plans when negotiating with creditors, offering them a lump sum settlement for less than the full balance of your debt.

Debt Management Plans

Another option if you owe money to several creditors is to work with a debt management organization to create a repayment plan. Under this structure, you pay most of your disposable income to your credit counselor who then distributes the payments to your creditors and acts as a liaison on your behalf. Like negotiating, debt management plans work best with unsecured creditors. Creditors with the right to foreclose or repossess your property will be less likely to cooperate with the credit counselor.

If you are considering this option, please be aware that in most cases this may not be the most successful option, as some of these plans include exorbitant charges. If you choose to use a debt management organization, be certain it is reputable, free to use, and usually operated as a non-profit organization. Your bankruptcy attorney can help you select a debt management organization that will help you, rather than make money off you.

What Are the Benefits and Risks of Non-Bankruptcy Options?

If you are still on the fence about whether bankruptcy or a non-bankruptcy option is best, it is worth considering the benefits and risks of non-bankruptcy options. You can weigh these against the pros and cons of filing for bankruptcy, to see which is the right option for you.


  • Your credit score will probably not suffer as much as if you filed for bankruptcy
  • You will reserve your right to file bankruptcy later if you need to
  • You may still be able to take out new loans (depending on which option you choose)
  • You will be in control of what assets are sold or liquidated
  • You may be able to stay on good terms with creditors


  • Your credit score will probably still drop somewhat
  • You may be prohibited from taking on new debt under a debt management plan
  • You will need to change your buying habits and lifestyle
  • You may need to follow someone else’s rules for how you spend your money
  • You may still need to sell assets to satisfy your debts

There are no easy answers to how to get out of debt. The process of repaying what you owe will take time and sacrifices. But bankruptcy isn’t the only answer. That’s why you should review your entire financial situation, including your income, assets, recent changes, and debts, with an experienced bankruptcy attorney to decide what strategy is best for you.

At John A. Steinberger & Associates, P.C., we know times are tough for a lot of Michigan families. We are a full-service bankruptcy law firm in Southeast MI, serving debtors and families in Southfield, throughout Metro Detroit, and in the surrounding communities. We meet with clients considering their bankruptcy options in Michigan to decide whether a non-bankruptcy option may be right for them. Call us toll-free at (866) 690-2140 or contact us online to schedule a free initial consultation.

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