How Do I Avoid Bankruptcy? |
By Laura Gutmann on May 17, 2010
.jpg.aspx?width=75&height=75) Declaring bankruptcy is often a bottom of the barrel, last-ditch solution when your financial situation has become so severely impaired that you do not have any hope of immediate recovery and repayment of debt under your current arrangements. Declaring bankruptcy can destroy your credit history, cause you to lose your property or other assets and make receiving future loans difficult, so it should be taken seriously. It is not a free pass, either – you will still be responsible for repaying as much of what you owe as possible, and using every possible asset you have to fulfill your obligations. If you fear that you are coming perilously close to these unfortunate circumstances, you should immediately meet with a reputable financial counselor to discuss other options.
Other options usually include negotiation with your lenders. Beware of shady debt settlement companies that may arrange a deal that will cost you more in the long run. The U.S. government recommends an approved list of financial counselors, which you can search through by location online. They can help you negotiate alternatives to bankruptcy like debt settlement or debt consolidation. If you are able to create a settlement agreement with your lenders, they may agree to significantly reduce the total amount that you owe in exchange for committing to a reduced monthly payment plan over a set period of time. Consolidation is another good choice if you have multiple debts with high interest rates. You can combine them into one bill, from one lender – with lower fees. It never hurts to ask credit card companies and other lenders for help, because they would often prefer for you to pay back some of what you owe rather than giving up on your debt altogether.
Before taking drastic steps, you should also analyze your budget carefully. Are there any expenses you can cut back on? Are there any assets you can sell? For example, if you have two cars, can you live with one, eliminating a chunk of your monthly costs? Thinking through your financial situation may help you start off on the right foot as you begin to rebuild your spending capabilities.
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