7 Helpful Tips to Avoid Bankruptcy

Share via

Having a tremendous amount of debt can be stressful and overwhelming. However, millions of people find themselves in a mountain of debt with no end in sight. One option for dealing with debt is to file for bankruptcy. Basically, you are saying that you do not have the money to pay your debts. However, bankruptcy should only be used as a last resort. It can ruin your credit and your reputation.

Therefore, here are 7 helpful tips to avoid bankruptcy.

1. Sell your Possessions

Having a lot of unnecessary items lying around your house is a common situation most of us face. Consider selling them. Online sites have made selling your things more convenient. You can sell your clothes, books, electronics, or even your jewelry online. You might even be able to sell your car. Go through your closets to see what unwanted items you might have. You can also sell your furniture or antiques. If you file for bankruptcy, you might be forced to part with these items anyway. So, you might as well make some money from them. Sell everything that you do not absolutely need. You will be surprised at what you might be able to sell.

2. Cut Back on Expenses

Only spend money on the bare minimum. Resist the temptation to go to the movies or go out to eat. Do not buy any new clothes or electronics. If possible, you might consider moving to a cheaper house or selling your car for a cheaper one. Use coupons and buy inexpensive types of food. Cancel the membership to the gym or get rid of Netflix. Check to see if you can get cheaper rates on your electric bill, phone service, or car insurance. Every little bit of savings can help. Cutting back on unnecessary expenses could be a step to helping you avoid bankruptcy.

3. Restructure your Home Mortgage

For most people, the mortgage is the highest bill you pay. Your mortgage company can look at your finances to see if restructuring your loan will help improve your finances. You need for your home to be more affordable to you so that you can make the payments and avoid bankruptcy. By restructuring your loan, you will change the terms and conditions of the mortgage. They normally do not check your credit, but you need to prove that you can make the payments. In some cases, you need to show that you have a financial hardship. This could be a step to avoid bankruptcy.

4. Ask your Creditors to Help

If you file for bankruptcy, chances are that creditors will not receive their money. It is worth calling them to see if they will work with you. As soon as you cannot pay your credit card bill, contact your creditors to see if they might lower your interest rates and waive additional fees. They would rather get some money as opposed to no money at all. Your credit card companies just might have a hardship program that can help lower your monthly payment. Not all creditors will be willing to negotiate, but it is worth a try.

5. Go to Credit Counseling

Credit counseling before filing for bankruptcy can help avoid bankruptcy proceedings. Credit counseling can help improve your finances and raise your credit score. A counselor will help you create a budget. He will examine your bills as opposed to your income. He can help keep you from living paycheck to paycheck. You can even do credit counseling online if you do not want to attend in person. A credit counselor will look at your credit report and go over every expense that you have. He will also help you make better financial decisions in the future. It is a good option to consider when trying to avoid bankruptcy. Many bankruptcy lawyers offer help with credit counseling. They can give you advice on bankruptcy and help you manage your finances. When it really matters, you might need a financial advisor and a bankruptcy lawyer. With some law firms, you can get both financial planning and legal help. A bankruptcy lawyer will help you achieve your goals, and he will help you get your finances in order so that you can move on with your life. He will give you personalized attention, and he will help relieve some of the stress you are feeling.

6. Consider Debt Settlement

A debt settlement company will negotiate with your creditors on your behalf. They will ask your creditors to pay a portion of what you owe. The company can prevent debt collectors from calling you. Debt settlement only applies to unsecured debt, such as credit cards or unsecured loans. You usually cannot settle your student loans. You normally need to prove that you have a hardship. You will then pay the debt settlement company one payment each month that you can afford. Keep in mind that debt settlement will have a negative impact on your credit score for a few years. You also might have tax consequences. This should be the final step before you consider bankruptcy. Make sure you stop taking out loans or new credit. It seems like you have no other choice, but it can get you in worse financial shape than you already are.

7. Ask Family or Friends for Money

Having to borrow money from family and friends can be a very prideful experience. But, if you are about to be forced into bankruptcy, you can set your ego aside. Make sure relationships are not destroyed because of money. Try to ask a relative who can afford to give up the money. If they are sympathetic and understanding, it will really help get you out of a bind. You need to ask a family member whom you completely trust. Only ask for an amount that you absolutely need. You also need to ask about the conditions. Do they expect you to repay the loan? Just be cautious when asking friends or family for money. You want to keep that relationship.

Bankruptcy stays on your credit report for 7-10 years after you file. It can prevent you from applying for new credit, and your credit score will plummet. Bankruptcy is a very long and daunting process. It can put a huge amount of strain on your relationships. A bankruptcy lawyer can help you know the choices available to you.

Many people have other options available before they consider bankruptcy. Just get organized and take control of your finances. If possible, you want to avoid having to file for bankruptcy. Other choices are available, so you want to make sure you have explored all options before you consider bankruptcy.


Share via
Samantha Acuna is a writer based in San Francisco, CA. Her work has been featured in The Huffington Post, Entrepreneur.com, and Yahoo Small Business.