During the recession, bankruptcy became widespread in the United States. When dealing with impending foreclosure and floating in excessive debts, many people think that filing for bankruptcy is one of the easiest, safest and perfect solutions to get rid of all the financial problems. But this is not entirely true. While bankruptcy may eliminate a lot of your debt, there are still consequences. Your credit score will be negatively affected. Some types of debt, like student loans, cannot be discharged in bankruptcy. Also, the updated bankruptcy law passed in 2005 has been amended with many rules and restrictions, which has made filing bankruptcy a challenging and complicated process. Still, for people facing severe financial distress, bankruptcy offers a way for you to hit the reset button and restart your financial life.
However, bankruptcy should be a last resort. If at all possible, it is much better to fix your debt issues and avoid bankruptcy.
The new bankruptcy laws in the U.S. may impose the following requirements on those who file bankruptcy:
• Must have to attend mandatory credit counseling.
• Must make the ongoing payments to creditors.
• Must participate in financial-management education.
Here are some potential things you can do to avoid bankruptcy:
Start to Write Budget
The first step to avoiding bankruptcy and controlling your finances is to get on a written budget. When you write a budget, you know your expenses. You can calculate everything and spend accordingly. Either make it on paper with a pencil or use an Excel spreadsheet — but make it.
Cut Down Your Expenses
When you are in huge amounts of debt, you must start to cut down all unnecessary expenses and focus primarily on paying off debt. A change in daily routine may be required. You must slash your expenses on things like movies, restaurants, unnecessary shopping, and expensive salons. Paying off your debt should be your first priority.
Stop Using Credit Cards
After you have made a budget and reduced your expenses, the next important step is to restrict your use of credit cards immediately, and instead pay in cash for all purchases. Credit cards are the worst thing to use when you are already in substantial debt, so don’t think hard about it. Simply lock it away, throw it away, or ask your credit card company to cancel it. Do whatever you can when it comes to avoiding the use of credit cards.
Downsize your Lifestyle
If you can’t afford to maintain your current lifestyle, the next phase of your effort should be to downsize your lifestyle. If you need to shift into a smaller house or downscale to a cheaper car, don’t hesitate. Do it. It is better to pay off all your debt instead of being bankrupt, which can further damage your credit score. And if you think you are unable to prioritize or slash your budget, then take help from certified credit counselors. Their services are affordable, probably in between $25 and $50. Sometimes these services can be offered for free if you are unable to afford them.
Sell Some of Your Assets
The next step is to sell whatever you can, such as unused furniture, jewelry, books, CDs, and electronics. If you have an extra house or cars, sell them and pay your creditor. Selling unused things will give you breathing space when it comes to paying down your debt.
Increase or Maximise your Income
If you have implemented everything discussed so far and still find yourself in a tough position, then the time has come to maximize your income. If your current job is not fulfilling your needs, work hard to get a second job or a third job. Utilize the maximum time of yours to work and collect money to cover your expenses and debts.
Negotiate With Your Creditors
If you are still unable to fix your financial situation, it is high time to talk with your creditors and seek out ways to avoid bankruptcy. Let them understand your situation and your clear intentions about paying the debt. Ask them to lower down the monthly payment or to decrease the current interest rate. This may help you to deal with your situation.
Get Professional Help
Even if things don’t work out after talking to your creditor, seek out for consumer credit counseling. It is better to consult the help of experts when you are in trouble and unable to control your current financial stress. Search for a consumer credit counselor who has expertise in working with creditors to lower down payments and reduce the interest rate.