When a person files for bankruptcy, he is declared legally to be unable to pay back to his creditors. Filing bankruptcy relieves the individual from most debts but it makes is very difficult for him to borrow in future. Bankruptcy can have disturbing effects on personal and professional life of an individual. It affects the individual's credit rating and borrowing capacity for next 7 years or so. Therefore, filing bankruptcy should consider as the last resort. You should do whatever you can to find a suitable bankruptcy alternative.

That said here are a few options which can be considered as bankruptcy alternatives:

1. Judgement proof or 'Take no action' - This is a very simple case where you don’t have to do anything at all. If you don’t have any assets or any income then you simply take no action. The creditor knows that he cannot seize anything therefore he won’t take much action. After 7 years, the debt will be erased from your credit history.

2. Talk to the creditors - Instead of just shunning the creditors, you can talk to the creditors openly and let them know your financial situation. They know that you can file for bankruptcy in which case you will lose all part of their debt. Sometimes, they can help you extend the loan duration or ease the payment terms. This may help you come out of this situation.

3. Self Money Management - Mostly, people reach this situation because they have been spending more than they earn. Therefore, it is a good idea to take a relook at your personal spending to cut down on expenses. You can create personal budget and analyze the spending. Then try to reduce them and savings would start. Some of the items on which savings can be done are cable expenses, eating outs, using public transportation etc.

4. Debt Consolidation - Debt consolidation is a good bankruptcy alternative. Debt consolidation typically involves borrowing from one lender (typically a bank), at a low rate of interest, sufficient funds to repay a number of higher interest rate debts (such as credit cards). When you consolidate debts, you replace many payments by only one bigger one. This reduces complexity in your budget. You can try to get the bigger debt at a lower interest. Or have a co-signer or asset so that you can get the debt even if your credit is not sufficient enough.

5. Formal Proposal to Creditors - If the negotiations with creditors, personal budgeting and even debt consolidation do not work even after trying, then another bankruptcy alternative you should try is to give a formal proposal to the creditors. This is a legal procedure in which you can file for Chapter 13 Wager Earner Plan. The plan will typically last for up to five years, during which time the debtor makes payments that are distributed to their creditors. There are different legal procedures in different countries to do this. In Canada, a Consumer Proposal can be filed with the assistance of a government-licensed proposal administrator.

6. Individual voluntary arrangement - This is a good bankruptcy alternative in UK. This arrangement is a part of Insolvency Act 1986. This arrangement allows the debtor to repay the creditors over a period of five years. With this alternative sometimes as much as 60 % of the principal amount is written off. Even monthly payment can be kept very low.

In current times of recession a lot of population is on the verge of being bankrupt. But then, more and more people are also trying to find a suitable bankruptcy alternative since bankruptcy can be very difficult to deal with for the rest of your life. To avoid the negative impacts of personal bankruptcy, individuals in debt have a number of bankruptcy alternatives and he should do everything in his power and capacity to avoid being declared as a bankrupt individual.

Check out other related hubs about bankruptcy which might be useful.

• How to go bankrupt?
• Loans after bankruptcy.
• How to find a suitable bankruptcy alternative?
• Medical bankruptcy
• How to get a credit card after bankruptcy?
• Do it yourself bankruptcy
• Buying a car after bankruptcy
• Life after bankruptcy discharge