Bankruptcy

10 Things You Can Do To Avoid Bankruptcy

If you are struggling with your debt problems and considering filing for bankruptcy as a last resort, you must sit back, take a deep breathe, and rethink your decision with a calm mind before you proceed and file your petition. There are plenty of things you can do to avoid bankruptcy. When you go bankrupt, your credit score comes down to the lowest level, which makes your financial life very difficult. The life of an average American consumer runs on credit. With bad credit because of a bankruptcy record in your name, you may have great difficulty in getting mortgage loans, car loans, insurance polices, and even good employment. Landlords may also deny your application to rent a home. You may even have to face problems in getting electricity or phone connection or other utility services in your name. Overall, giving a fresh start after bankruptcy is not at all an easy task – it takes a lot of efforts and pain and many years of work. Therefore, you are strongly recommended to use this option as a last resort only when you are sure that there are no other alternatives available. In general, you can take the following ten steps to work out a better alternative.

Discuss Your Situation With Your Creditors

Even your creditors want you to avoid bankruptcy. When you go bankrupt, the creditors are likely to be paid less than you owe to them. Some creditors, especially the unsecured ones, do not even get paid at all. Another reason why creditors do not want you to take this drastic step is because even though they have hope of getting paid, the process is highly time consuming. Therefore, you should not hesitate in discussing your situation with them. If they get convinced that you are genuinely in a poor financial position, the chances are that they will work out an alternative repayment plan for you, something you can easily afford. You must contact them immediately because any delay will only make things more complex, as you are likely to be left with fewer or no options at all.

Respond Promptly To Your Creditors When They Try To Contact You

Debtors, who fall behind their payments, often tend to avoid calls and letters from their creditors. If you seriously want to avoid bankruptcy, you are strongly recommended not to do that; instead, you should promptly send responses to all such calls, letters, and emails. Such communication will open new doors of opportunities for you, as you are likely to find out better options on how to deal with your debt problems.

Send A Proposal To Your Creditors

Do a thorough review of your financial situation (of your expenses and income) and then prepare a proposal based on how you can afford to make the repayment. Depending upon the severity of your problems, you can choose from an array of options, such as a debt consolidation plan, a debt settlement plan, or a simple debt management plan. Expect that your first proposal will get rejected. When that happens, send a second proposal, and then third, and then fourth – just make sure that whatever repayment plan you are proposing is affordable to you. You may even like to consider your creditor’s proposal if offered to you. Your negotiation skills will be at test here. How favourable the final deal is will depend on how efficiently you can negotiate. Whatever proposal you send, make sure you attach relevant documents in support of your claim – this will make things more convincing for the creditors.

Consider Getting Credit Counselling

If your debt situation is overwhelming, you should consider working with a professional credit counsellor to get suggestions on how to avoid bankruptcy. Many lending institutions provide this facility to their debtors who fall behind their payments. Credit counselling will help you in an array of ways. For example, it will help you work out alternative plans with your creditors. You will be able to choose the most suitable options based on your specific situation. You will have better understanding of your legal rights and responsibilities. Most importantly, the credit counsellor will also work hand in hand to review your financial situation and to create a budget accordingly so that you can find ways on how to get your finances back on track.

Cut Down Your Expenses And Increase Your Income

Do some strict budgeting and stick to it. Cut down your expenses to a very low amount. Practice frugality, if needed. Look out for ways on how you can take care of your most important necessities, such as medical care, shelter, clothing and food by spending the least amount of money. Build a habit of using cash for your purchases. Avoid impulse buying. This step is the most crucial one and it requires a lot of self-determination and financial discipline. If possible, you should also consider increasing your income, such as by getting a second job or by working part-time. When you combine your savings with your increased income, you will see a whopping amount of extra cash, which you can contribute toward debt repayment and see the outstanding balances on your debt accounts reducing faster.

Protect Your Credit Score

One of the most important reasons why you must work on alternative options to avoid bankruptcy is that bankruptcy can damage your credit score, which will eventually make your financial life very difficult and painful. The better credit score you have, the better and more financial options will be available to you. So, do not do anything that hurts your credit. For example, do not make too many enquiries for loans, credit, and insurance within a very short period of time. Do not make further defaults on your debt payments (especially if your creditor has already provided you a second chance in the form of a more affordable repayment plan). With an improved credit score, you may even find several new, better options, such as refinancing on much more favourable terms.

Do Not Apply Or Obtain More Debts

It is important that you do not obtain more debts. While you are working day and night to control your debt situation and to improve your finances, acquiring more debts will be the most stupid thing to do. It will make things worse, and this time, you may even have no option to avoid bankruptcy. So, do not apply for more credit cards or new loans, no matter how attractive such offers look like. Instead, focus more on savings and on adding extra money to your monthly income.

Consolidate Your Debts

When nothing works, try to consolidate your debts. You can do it on your own by merging all your debts into one big loan. It means you can borrow a big loan to pay off all your current debts. This way, you will end up having just one debt account and one monthly payment. This will make things easier for you to manage and you will be able to work more efficiently to improve your finances.

Settle Your Debts

In more extreme situations, your creditors may even agree to a debt settlement program, where they will accept a reduced amount of money than you actually owe to them as a full and final settlement of the entire debt. You may even be offered the convenience to make the reduced amount of payment in several monthly instalments. Since even your creditors want you to avoid bankruptcy, it is worth talking to them about this option. Depending upon your specific situation and an array of other factors, this option might just work for you.

Sell Some Of Your Assets

If you are still having difficulty in keeping up with your monthly payments, you should consider selling off some of your assets and to pay off some of your debts from the money thus received. If you file for bankruptcy, most of your assets are anyway going to be sold off (unless they come under exemptions). Therefore, in very extreme situations, you should seriously consider this option also. Once your financial situation improves, you can buy those assets again. But once bankruptcy comes into record on your credit report, it will stay there for the next ten years. The choice is yours.

While you are working on the above ten steps, you must take care of a few things. For example, you should never accept a verbal proposal; always do it in writing, where both parties must sign on it. Read the fine prints thoroughly before you sign it. If you are not clear about any specific provision in an agreement or contract, get it clarified first. Get help from financial experts, if needed, in order to ensure that your legal rights are not being violated. Most importantly, while you are working on your strategies to avoid bankruptcy, you should never look out for quick fixes. Always remember, if something sounds too good to be true, the chances are that they are. There are many unscrupulous debt consolidation and debt settlement companies out there who are only after your money. So, you have to be very careful when you sign up with any program they have to offer. You must do your research thoroughly before you go for one.


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