When the modifications to U.S. Bankruptcy Code made it more difficult for people to declare bankruptcy and have debts forgiven, many consumer rights activists cried foul. The credit industry worked hard to get this passed, and at first blush, it does appear to work against debtors.On the other hand, the changes did debtors a favor in some respects. By making it harder to seek bankruptcy protection, the new laws made it mandatory that those who might not need to declare bankruptcy go through credit counseling and enter a repayment plan if possible. The changes also revealed just how desperate creditors are to keep your debts from being written off completely. Armed with that knowledge, there are ways to avoid bankruptcy and right your personal financial ship.Pennies on the DollarEveryone has seen or heard ads for law firms or other agencies that will work with creditors and settle your debts for virtually nothing. This can happen, but there are some caveats. One is that many such agencies are not reliable or trustworthy. If they are full-fledged law firms, they will have some oversight from the state supreme court’s disciplinary counsel, as well as the local bar association. Even so, be wary and investigate before signing on with anyone.Further, these agencies collect your money for a time without paying your creditors. Your accounts will get further behind while you pay them, knocking your credit score down nearly as much as a bankruptcy would. If you are struggling to make ends meet but paying on time or nearly so, this is a fairly unpalatable option.Finally, to the extent that these agencies do help, you may be able to do the same for yourself. While some creditors are more willing than others to settle for lower dollar amounts, any of them would rather take something than nothing. Thus, if you are already that far behind, you might try saving yourself some fees that would be charged by the agencies by negotiating for yourself.Credit CounselingAn adage that has been unfairly applied to lawyers is true in the area of credit counselors; 99 percent of them give the rest a bad name. Class action suits against these groups abound, and internet message boards are full of angry stories. A good credit counseling agency can help immensely.The way such agencies work is to work out a payment plan with you based on what you can afford. They then apply it to paying off your creditors based on preset rate reductions. They are funded by the credit industry, which is a major turn off for some people. However, the credit industry pays them to do something that helps the consumer; they help you pay your accounts off, at a lower interest rate than you might get otherwise.Again, many of these agencies are unreliable, paying late or not at all. Many creditors, upon your telling them you plan to work through a credit counseling agency, will try to talk you out of it for this reason. When they do, listen. You may be able to work out a better deal for yourself than the agency could. The creditors want to be paid to the extent possible; they have no incentive to ruin your credit by forcing you into bankruptcy.If you do decide to go through a credit counselor, investigate first. Is the agency accredited? What complaints against them have been filed with the Better Business Bureau and how have they been resolved? Find a place you can trust.ConclusionThere are ways to avoid bankruptcy in most cases. If you have lost everything with uninsured hospital bills, that is one thing. Being behind on your bills and overextended on credit need not push most people over that edge. Creditors want you solvent so they can collect something; you want yourself solvent so you can obtain credit again someday. The U.S. government wants you solvent so you can contribute to the economy. Look into your options and you will learn that you can usually find your way out of the bankruptcy hole before you hit bottom.