How to avoid filing for bankruptcy

Usually there are many reasons why a person might want to avoid filing for bankruptcy. For one, a recovery from a bankruptcy filing, from a credit standing point of view, can be difficult. This is especially true when the economy is facing a down turn and lenders are already sceptical about lending money. Of course, taking on further debt right after your have filed for bankruptcy should be the furthest thing on your mind. However, in order to get back on your feet you, this might the hour of your greatest need as well.

We have dealt with the topic of how to recover from bankruptcy in several posts in this section. Have a read through them. In the post we are going to talk about how you can avoid filing for bankruptcy if at all it can be helped.

Avoiding Bankruptcy by Paying Off Your Debt

Many people are unaware that if you file a chapter 13 bankruptcy you have to come up with a repayment plan to pay off your existing creditors. This payment plan usually does not require a payment in full and several of your assets can be exempted from debt recovery. However, you may find it will worthwhile to consider if you can pay off your creditors without filing for bankruptcy. You need to take a closer look at your budget and expenses. You will probably need to cut down on surplus expenses you can do without such as cable television, cell phones and entertainment bills.

You can also explore if there is a way to increase and supplement your existing income in some manner. Maybe you can use one of your hobbies or skills to work over weekends to make extra money. Maybe you can work overtime or take on an extra job. If your spouse’s the non-working member of the family maybe he or she can take on a part-time or full-time job as well.

Avoid bankruptcy by taking help from family and friends

Borrowing money from family and friends is never easy. When money matters are included between people who love each other it can easily create misunderstandings and hardships in the relationship. At the end of the day it all depend on who you ask and what kind of relationship you share with that person.

Before you ask your family or friends to help you pay off your debts take a close look at your own financial resources. Be honest about how much you can come up by yourself rather than rely completely on borrowed money.

Calculated the maximum amount money that you can pay yourself and then presents the marginal amount to the people you are seeking help from. Also come up with an organised plan to to pay them back. If it is going to take you a while before you can pay the money back, make them aware of this.

Be perfectly honest with yourself as well as the people you are borrowing money from so that there are no misunderstandings in your personal relationships.

Avoid Bankruptcy by using credit counselling services

Taking the help of a consumer credit counselling is an alternative to filing for bankruptcy in two ways. First of all a consumer credit counselling can help you manage your finances and come up with a budget that creates more disposable income on your current income source.

They can educate you to how to manage your finances better so that you have the ability to start paying of your current debt. The important thing is to find a legitimate and accredited consumer counselling service.

The second way in which a consumer credit counselling service can help you avoid bankruptcy is by enrolling you in a debt management plan. A debt management plan typically works by reducing your payment and interest rates with a creditors. A consumer credit counselling service that has an experience with working in this field will be able to consolidate all your debts and negotiate with your current lender is in order to reduce your monthly payments and interest rates.

Credit counselling is worth considering since the new bankruptcy law makes it mandatory for any person filing for bankruptcy.

Avoid bankruptcy by settling debts

You may think at this point that if you could pay off debts you would not be filing in the first place. But settling debts is different from actually paying them off.

Settling debts involves speaking to the creditor and negotiating the amount you can pay back.

You may be surprised with how much a lender is willing to settle for once you convey the true nature of a financial hardship.

While settling debt is also not very good for the credit score it is preferable to filing for bankruptcy. Using a debt settlement company at this point may not be a very good idea as they will add to the cost and in some cases cause dire harm to your credit rating. You should first settle the debts that have been sent to a collection agency for recovery.

Before you try and negotiate with the creditors and the debt collection agencies to settle a debt make sure that you need to know how much you can afford to pay back. This way you will know what offer to make to the creditor.

Try and be prepared to make the payment as soon as an agreement is reached. Sometimes the very basis of a settlement is that a creditor wants his money back sooner than later even if the amount is lesser than what is owed to him. The agreement may also be reached on the basis of making the repayment soon.

Avoid bankruptcy by liquifying your assets

When you do not have ready liquid finances to pay off your debt you can use your intangible assets to repay some of the money you owe. Take action as quickly as possible and see if you can sell off some of the furniture, jewellery and electronics to get additional funds. Selling of items on eBay, craigslist etc. can provide you with the funds that you need to avoid bankruptcy.

You may want to consider this because while a bankruptcy filing may be able to get rid of your loans for the moment it may damage your credit rating so severely that you may find yourself bereft of a lot of services and utilities in the future. You may find it difficult to get a house on rent, qualify for a loan, get a credit card or even gain employment.

Selling off some of your assets may result in some inconvenience and discomfort. But it just might be the step you need to take you get back up on your feet and start with a clean slate.

Avoid bankruptcy by taking help from your creditors

When you are genuine facing financial hardship you may find that your creditors are more helpful than you expected. Before you come to the point where you start getting delinquent on your payments or considering filing for bankruptcy, try to communicate with your creditor.

Most of the creditors would like to recover as much of the money they have lent rather than go through the lengthy process of bankruptcy repayment plan where they may or may not get their money back.

In stead of going to court, they may prefer to come up with a repayment plan that will allow you to make pay them back, if not fully then partially. A creditor may be willing to lower your monthly payment or the amount owed in order to ease the burden of your loan.

Many credit card companies and banks also have hardship programs which are intended to help consumers facing problems with repaying their debt. The first step is communicating with the creditor and enquiring if such a program exists.

Before you enter into any hardship program make sure that your payment and interest rate actually go down. It is just possible that you could be stuck with an even higher minimum payments than before.