Filing for bankruptcy is a huge decision that should never be taken lightly. Whether you’re considering filing for Chapter 7 bankruptcy or Chapter 13 bankruptcy, there may be steps you can take first to avoid bankruptcy altogether and get your personal finance situation back on the right track.
Cut back on your spending habits. This may not feel easy, but it may be the best course of action in the long run. Consider creating a realistic and responsible budget that considers your income. If you love to order take-out every night or grab a coffee every morning, it may be time to make some changes.
For some, creating good habits and sticking to them can be vital in returning from the brink of bankruptcy. If you use your credit card liberally, consider using your debit card instead for most purchases. Only spend money that you already have if possible. Cancel memberships you don’t use or need or find cheaper alternatives for the time being.
Put unessential purchases on hold. You may want the newest TV but do you need it? Living within your means is crucial moving forward if you’re going to pay off your debts.
If you have extra assets, consider selling them. If you have multiple properties or vehicles, collectibles, jewelry, or heirlooms gathering dust, you may be sitting on a sizable amount of money that could help you climb your way out of debt.
Selling your assets is a quick way to earn cash. List your items online or have a yard sale. If you have a larger, more expensive home, consider downsizing and using the money you make off of the sale to pay your debt.
More times than not, creditors would rather get some money from you than none at all. Sometimes, creditors are open to negotiation. Your creditors may be amenable to negotiating your debt down or decreasing your monthly payment, depending on your debt. This may allow you to avoid bankruptcy altogether.
Some may even forgive a portion of your debt, while others may consider lowering your interest rates too. When opening a dialogue with your creditors, be sincere and open to repayment options.
One bankruptcy alternative is debt settlement. Settling your debts is a tool you may choose to utilize, but do so with caution. Typically, a debt settlement will appear on your credit report for seven years unless you negotiate otherwise with your creditor.
If you choose to go this route, avoid using a for-profit debt settlement company. Fees are not your friend when you are on the brink of bankruptcy. If you settle a debt, you will usually owe a lower amount but as a lump sum.
However, one of the drawbacks to debt settlement is that the unpaid amount that your creditor forgives will be considered income tax on your next tax return. The unpaid amount will also be reported to credit agencies.
Depending on your situation, consolidating your debts together may be a viable option. With debt consolidation, every debt you have is consolidated into a single lump sum or loan.
This can be a straightforward way to see your total debt and to pay it off in one monthly payment instead of many. For some, this may be a less stressful option. Usually, the interest rate is lower, as well as the monthly payment.
The advice and help of a professional credit counselor can be beneficial to anyone considering filing for bankruptcy.
Non-profit credit counselors can help you create a debt management plan, which is a debt repayment plan that considers your income. These plans do not affect your credit score. However, if you miss a payment, you will not have any protections like you would if you filed for chapter 13 bankruptcy.
Borrowing money from your loved ones can put a strain on your relationships. Not only that, it can be difficult and uncomfortable to ask your family or friends for money too. However, if you are in a tight spot, it may be a way to avoid filing for bankruptcy.
Enter into the conversation with the knowledge of what you can pay back yourself and how much you need help paying back. Have numbers on hand. Know how you will repay them once your debt is paid, and make it known to them, so everything is clear.
Being on the brink of bankruptcy is stressful and challenging to navigate. Schedule a consultation today with our experienced attorneys. We can help you assess your situation further and create a plan of action!