Even if you are over your head in debt, you may not have to file bankruptcy. You can consider the possibility of a debt workout instead. This is when a lawyer or attorney makes arrangements with your creditors, which requires you to make some payments, but less than owed. At other times, the arrangements are for the full payment, but over a period of time. In some cases, you can pay both a smaller settlement and make payments over time.

A Chapter 7 will remain on your credit report for upto10 years and may be reported on financial statements for much longer. Avoid the credit loss caused by bankruptcy. A workout allows you to be in better control and increases the chances of keeping your hard assets and control soft assets like cash. A workout process has more chances of success, if you are only a few months behind. If you file a bankruptcy, the lender would probably get little or nothing. By agreeing to a workout, they stand to gain more. However, remember that workouts or bankruptcies are serious actions affecting you for many years. Dont take them lightly or handle them casually. Choose a lawyer who handles these cases quite often and ensure that you agree with their attitude and philosophy and are comfortable with them.

There are many options for debt workout. A short pay or short refinance can be accomplished through a refinance loan for the property. The loan must be large enough to cover the amount owed to the original bank and all the associated transaction fees. In some cases, a friend, relative or investor can buy or pay off the mortgage at a discount. Keep in mind that some high risk investors will eventually sell the house back to you, while others prefer to hold on to it. Make sure their goals coincide with yours.

You can also workout a modification of the existing mortgage. The lender would agree to change the terms of the loan, often temporarily, either reducing the interest rate or principal portions or extending the amortization. A professional foreclosure negotiator can often get these plans approved much more easily. Another option is a repayment plan. The debtor would pay a part of the arrears up front and agree to pay the rest along with the regular payments over time. It is easier to get this kind of plan approved, if you can give proof of income and the proper down payment. About half the arrears and the lenders legal fees would be paid up front, with a promise to pay the rest of within six months. A professional loss mitigation expert can negotiate plans with less down and a longer time.

A deed in lieu of foreclosure is when the debtor voluntarily returns the property to the lender, usually in exchange for forgiveness of potential deficiencies. A short sale is when the property is sold to a third party and the creditor accepts the sale price as a full settlement. In a friendly foreclosure the creditor or any friendly third party, having bought the mortgage, sells the property at an auction to clear the title of all other lien holders. The property may later be sold back to the homeowner or to a predetermined entity. The option of repurchase after foreclosure allows the homeowner to buy back the foreclosed home after the auction and forbearance ensures that the creditor agrees to temporarily cease legal actions, in exchange for money or some other action like listing the property with a realtor or making some repairs.