July 20, 2018

Alternatives to Bankruptcy if Your Debt is Less than $20,000

On a fairly regular basis, I get calls from potential bankruptcy clients who don’t really have enough debt to justify the time and expense of bankruptcy.  For example, if your only debt is a delinquent $7,500 credit card bill, it hardly makes sense to spend $1,500 to $2,000 for a Chapter 7 case.  Similarly, it makes no sense to spend $3,500 to $4,000 for a Chapter 13, especially if you would end up paying back 100% of the debt anyway.

What, then, are your alternatives?

Debt negotiation is one alternative.  Someone once told me that "everything is negotiable" and that is especially true when it comes to credit card lenders.  My experience, however, has been that you will find it difficult to convince a credit card lender to negotiate if you are current with your account.   When you get to three or four months delinquent, you may find that the credit card lender will talk to you seriously about a reduced lump sum payoff or some type of payment plan.  The problem with this, of course, is that your credit score will take a major hit and you will have to deal with those harassing phone calls.

Another problem – who is going to do the negotiation?  You can certainly try to negotiate your own account, but this can be difficult as you are the subject of the negotiation and you are emotionally involved therein.  There are vendors out there who say that they will do debt negotiation, but I think you need to be careful there too.  I have met with several clients over the years who have tried this route, all with very mixed results.  Several of these companies have been sued by the attorneys general in several states. 

Consumer Credit Counseling is not really a negotiation service – they are funded by the credit card companies and my sense is that their goal is primarily to take some of the heat off while you enter into a payment plan that pretty much pays back everyone 100%.

Recently I have noted that several law firms (none in Georgia, to my knowledge) have added debt negotiation to their menu of services.  For example, the Michigan law firm of Thav, Gross, Steinway and Bennett has a separate law firm called StopCreditorCalls.com and has posted several compelling videos on YouTube discussing their negotiation services. 

An Alabama consumer law firm, The Watts Law Group and M. Stan Herring, publishes a very informative blog about consumer protection.  Recently, Attorneys Watts and Herring have written a series of blog posts about the Fair Debt Collection Practices Act and have identified common types of violations.  In the case of FDCPA violations, it may be that a negotiation over a relatively small credit card debt may turn into an FDCPA claim – it would not surprise me if a settlement of an FDCPA claim involved a reduction in the outstanding balance or favorable terms for the debtor.

So, if you have a relatively small amount of debt (less than $20,000 of unsecured debt) I think it is wise to strongly consider non-bankruptcy alternatives as a more cost effective solution.

However, I am still looking for specific solutions.  If you were able to work out a resolution of your credit card debt outside of bankruptcy, or if you are a lawyer who can speak about non-bankruptcy alternatives, I’d love to hear from you.

About Jonathan

Jonathan Ginsberg represents honest, hardworking men and women in the Atlanta area who need personal bankruptcy protection. In practice for over 25 years, Jonathan teaches bankruptcy law and practice at legal continuing education seminars and he is a founding member of the Bankruptcy Law Network. Jonathan lives with his wife and children in Atlanta.


  1. Hi Jonathan,

    I am not a fan of encouraging consumers to hire lawyers to negotiate debts. But I do recommend that they take a reasonable approach to settlement. If an attorney is not getting paid, then that means the creditor is arguably getting more than they would without an attorney – and the consumer is arguably paying less. The consumer could however, simply remind the creditor that they can – and will – get a lawyer if they cannot work things out. So longer as the consumer knows what they are getting into (gets things in writing, ensures it’s really settled, etc.), I have no problem recommending that a consumer try it resolving it themselves.

    Hope all is well in your neck of the woods!

    -Bill McLeod

  2. Bill McLeod makes a good point. Negotiations with creditors or collection agencies are not likely to be pleasant conversations and you need to enter into this type of negotiation with the proper mindset.

  3. I was recently successful at negotiating settlements that reduced my credit card debt from $212,000 to $30,000. I had an attorney to advice me though I did all of the negotiating myself, in part because my creditors wouldn’t call my attorney or return his calls. I gathered that this was because they, too, understand that most individuals are going to have more emotional involvement in their debt than a hired attorney. Removing the “emotion” from my negotiations was a major step in reaching successful settlements. In the end, though, I avoided bankruptcy and saved over $100,000 in the settlements. I’m sharing my story on my website, if you’re like to know more.

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