The following is a guest post by Shaun Nichols of darngoodblogging.com.
In the recent era debt is a common issue. Most often due to reckless spending habits you may be entangled in the cycle of insurmountable debts. If you are overwhelmed with such debts, bankruptcy may seem to you as the last resort.
However bankruptcy filing hampers your credit score to a great extent. The negative markings stay on the report for nearly 10 years. It also spoils your chances of getting credits in the future. It is thus advisable that before deciding on bankruptcy, give it a second thought! If you can sort out the issue with other alternatives it will be a far better choice. If you are not sure about the alternatives, you can look for help from a bankruptcy attorney of your state to resolve such problems.
This article deals with a few smart ways which you can consider if you want to avoid bankruptcy filing.
- Analyze to find out if bankruptcy filing is really necessary: When you are unable to make the minimum monthly payments on your bills, facing creditor harassment every day, bankruptcy is not necessarily the only option. You need to know what your actual financial condition is. Is it worse or can it be brought under control? If the percentage of your debt is very small, bankruptcy filing is just not required. If other debt relief programs can resolve your problems then it will be better that you stay away from bankruptcy filing. If your debt amount goes beyond your control, only then you should think about bankruptcy filing.
- Plan a budget: Just when you figure out that you are facing financial troubles and your circumstances are moving out of hand, try to plan out a budget immediately. Limit your spending habits so you can restrict any more damage to your finances. Cut off on all the extra expenses that seems as a luxury. Make a monthly budget and try to stick to it. This will prevent deteriorating your situation further.
- Negotiate with your creditors to reduce debts: Contact your creditors and ask them to reduce your debts. Let them know your plans and intentions to get out of debts. If they agree on a negotiation plan then you can get the total debt reduced. If you are honest about your transactions with your creditors then there is possibility that your creditors will co-operate with you.
- Search for secondary sources of income: If your income is not sufficient to get the situation under control, look for other sources and ways to make money. Get some part time jobs or work from home that will add to your income. You can utilize this money to pay off some off your debts without disrupting your monthly budget. This will help you to get your debts under control.
- Make some changes in your lifestyle: If you want to resolve your financial issues faster it will be better if you make certain changes in your lifestyle. These can include buying things from dealer or co-operative store at a low price than buying them from a mall or shifting to a smaller flat from your luxurious accommodation. Avoid reckless purchases which can increase your debts.
- Consider selling away some of your assets: You can use some of your assets to pay off your debts. If you own a house, car or any item that will have a good resale value, consider selling it. The money you get from the sale can be used to pay off your debts. This will be better than filing bankruptcy as you can get control of your finances without hampering your credit report. Once your conditions improve and you pay off your debts you can buy these things again.
- Seek help from family and friends: If you cannot afford to make any repayments on your debt, you can look for financial help from any friend or family member. This will be a reasonable way to avoid bankruptcy filing as the money that you take will be interest free. As such there are less chances of incurring more debts. However you should make sure that you pay back your friend or relative as it can create ill feelings. Better still, before taking the money provide them with a repayment plan. This will increase your chances of getting the proposal accepted as they will be ensured that you are willing to repay.
- Seek professional help: If you want to avoid bankruptcy filing but are unaware of the other available options, then you can look for professional help. You can work with a consumer credit counselor who can help you to reduce your payment and interest rate. The counselor will advise you with the appropriate alternative for bankruptcy if your situation is not yet out of control.
This is a guest post by Shaun Nichols of darngoodblogging.com, which deals with various aspects of personal finance.
[Kevin: So, reader, have you ever been close to the brink? While part of personal finance is not getting close to bankruptcy in the first place, I find it empowering and helpful to know that one doesn’t have to just give up. There are options, and turning the ship around is still possible.]
I have never even been close to bankruptcy, but I know many who have. I think there used to be a much greater stigma to it in the past than there is now. I think with all the bailouts and such, people just accept bankruptcy as a viable option instead of really trying to dig themselves out of their hole and prevent bankruptcy.
I know people that got some really bad bankruptcy advice years ago and lost their home when they didn’t need to. If you do have to declare bankruptcy, educate yourself and find someone reputable to help your through the process. (Like it says in option 6!)
I know people that have put 2nd mortgages on their homes and even gone for more credit beyond that, but at some point all of the spending had to collapse when they eventually went bankrupt. The bad thing about the bailouts is that it encourages a culture of irresponsibility, as it seems to paint a picture that consequences can just be papered over…
This is a good article since it starts at the point where someone’s already pretty close. So many articles focus on not getting into debt in the first place, but that advice is too late for many. Good stuff.
Glad you liked the post, Darwin. Bankruptcy is a pretty bad outcome even if it does clear out some debts, so it’s better to do as much as possible to avoid that outcome.
Like Everyday Tips we have never been close to bankruptcy either but these are some great tips on how to avoid doing so.
I have never been close, myself, but personally know people that have. I guess you don’t know how bad it is unless you go through it, but I think that it’s definitely something to be avoided if possible.
A couple of years ago, right after her College to be precised, a friend of mine almost found herself in that situation. She had a rent, student loans, just lost her job, had to pay for a car (one of the cheapest used ones trust me, but still…) and almost nothing to eat… you know, rainy sort of days! She had made engagements she just could not afford yet. Well, she found a job in a restaurant and a newspaper (both were not really connected to her College degree), worked 70 hours a week, days and nights, for months and finally managed to avoid the worst. Now, she lives in a great house, is married, has a nice job (35 hours a week) and just got a couple of student loans to pay back. So, yes, those tips can really help you out.
That sounds like she went through a pretty tough time, but was able to push through it and get through things. I think that is definitely a much better outcome than declaring bankruptcy would have been! Thanks for sharing. 🙂
Great tips. I’ve never been close to bankruptcy though I’ve been in a low income situation. Whether or not you declare bankruptcy the tips are useful because otherwise it’s a matter of time before you’re back in the same boat.
I agree. If you don’t change things then sooner or later you’re just going to wind up on the bad side, again and again. It is a cycle that can be broken with some changes, though.
I don’t know what this says about our society, but I have known more people who just filed bankrupcy and sucked it up for the 7 years after vs working double-time to get themselves out of trouble. The stigma is gone.
The bailout culture probably isn’t helping with that. I admire immigrants because most of them come from places where people haven’t been as pampered with the luxuries that we have here, and they recognize the value of hard work and perseverance. The downside of wealth and living in a wealthy society is that if it is mismanaged and misallocated, it encourages sloth and bad habits! I think people who lived through the Great Depression and earlier times would be shocked at how good we have it, and how lazy we can be with the opportunities that we’ve been given.
Great tips. Bankruptcy should be avoided if possible because of the adverse effect on the credit score. Filing for it should be a last resort. However, for some people, bankruptcy could be the best option in order to have a fresh start and protect some of their assets.
I guess it depends on the situation, but many people probably see bankruptcy as an “easy way out”, which it may not be…
Hmm I don’t know of anyone personally who has been close to bankruptcy, but you’re right, there is such a stigma attached to it.
These are great tips though!
Even though there’s a stigma, for some people it is too easy to just go through with it as if they’re washing their hands clean, though it’s not quite that simple. 😉
Good advice. I may be old fashioned, but I was raised to think that bankruptcy is shameful and a total failure to manage your life and finances. I’d do everything in my power to avoid– eat beans and rice, rice and beans, work three jobs, and live in a shack.
I agree, I would feel pretty ashamed at having that stigma attached to me. There are probably some situations where bankruptcy is the best option, but too many people see it as an easy way out, when it should really be a last resort.
I would do anything possible to avoid bankrupcy. It scares me to death. It ruins lives and destroys futures. But I do know people who filed it just to avoid paying debts, who decided that it is an easy way out of debt. I have no respect for them.
I know people that have looked at it that way too, but by refusing to change their habits, they end up in the same boat sooner or later, except their lives are already made that much harder by having the stigma of a previous bankruptcy attached to them. It’s not really an easy way out but rather a last resort if need be…
I think you nailed it in the first sentence, “Reckless spending habits”
Most of the time or at least a lot of the time we can be our own worst enemy. We need to really think about and examine our past decisions. If we don’t, we’re apt to repeat the same mistakes. Filing bankruptcy seems like a way to cut ties to the past but if we don’t examine our behavior, we may find ourselves going in circles.
I agree, Mike. If someone is spending too much of their money on lotto tickets, consumer spending, etc… then they should look at doing something to change those habits, cause if they don’t, they’ll just have an even harder time of it after they do declare bankruptcy.
In the beginning of 2009 I was thinking WOW, this is ugly with the markets the way they are. However, my personal debt levels were reasonable to the point I just had to keep working or expand retirement if things went on like this.
Here’s hoping to some sustained asset inflation by the time we retire!
At the beginning of 2009 I was only a few months out of school, so I didn’t really have much money in the markets to lose… 😉
Pushing through is a good way to look at it, though. I don’t get the whole “retire and sit on your butt” thing anymore since the world is a very different one today. People are living much longer and healthier lives. Calling it “getting out of the rat race” is probably more apt, though I think I could see a case for always doing something to generate income so long as I have my health. 😉
Okay, so I am a Phoenix bankruptcy lawyer and I have an important point to make. I believe that nobody should consider bankruptcy unless it is truly necessary BUT people also have to be honest with themselves. I have seen too many clients completely drain otherwise exempt savings, only to resort to bankruptcy at a later time.
That’s a good point that one has to be aware of what they can and can’t do under the law, and to make the best personal decisions keeping that in consideration. Thanks for commenting!
I think many people face bankruptcy on account of a job loss, divorce or other medical situation. I find these situations different than just the regular “joe” who has to have the latest electronic gadget.
Certain unexpected situations can put people in a tough spot, I definitely agree with that. Under normal circumstances there is no reason one should go bankrupt if they are saving and spending prudently, but there are always unforeseen circumstances and we can only do our best when we encounter them.
These are indeed helpful tips for the general public especially since it involves finances. Many times people think that filing for bankruptcy is the only way to escape from financial trouble but there are certain guidelines that can be followed. Prevention is better than cure so they say and this is also applicable when talking about money. If one is spiraling downward, these are also helpful tips to follow.