6 Tips to Avoid Bankruptcy

Apr 28, 2021 | Debt Relief

The COVID-19 pandemic has shown that it does not take long for finances to go south. Fortunately, this has not reflected on the number of bankruptcies filed over the course of 2020. While 774,940 bankruptcy cases were filed in 2019, the number fell to 544,463 in 2020 – a drop of almost 30%.This goes to show that temporary setbacks do not have to result in bankruptcy.

If you feel your finances are in a mess, know that it’s not the end of the road. As long as you take suitable proactive measures, you, like many others, might be able to avoid bankruptcy.

1. Selling Some Assets

When faced with shortage of funds, you might consider selling some of your assets. These can include jewelry, electronics, and other valuables. If you drive an expensive car, you might consider selling it and buying a more affordable alternative. If you have a boat or a motorcycle you don’t use often, it can get you some much needed money. If you don’t mind downsizing, you may even consider selling your home and buying a smaller one.

2. Reducing Expenses

Your main aim at this stage should be to minimize your debt as quickly as possible. This means diverting all available money toward making repayments. This also means reducing your sending as much as possible. For instance, eating out, taking vacations, getting expensive haircuts, and spending on unnecessary clothing/footwear needs to stop with immediate effect. In addition, stop buying things on credit because this way you’ll only buy what you can afford.

3. Prioritizing Debts

Start by accounting for necessary financial obligations such as housing, food, utilities, transportation, alimony, and child support. The next step is to pay as much as you can toward your high-interest debt, while making at least minimum payments toward all other. Your goal should be to get rid of all your high interest debt as quickly as possible. If you have an existing student loan, find out if you might qualify for loan forgiveness, discharge, or cancellation.

4. Negotiating With Creditors

Call your creditors and inform them of your current financial situation. This might work well for you because creditors would rather receive some money than none at all. In some instances, creditors are known to provide assistance in the form of reduced fees, lower interest rates, and revised payment terms. Once you arrive at an agreement, do your best to stick to it because you can’t expect your creditor to offer more leeway in the future.

5. Consolidating Your Debt

Consolidating your debt requires taking a new loan to repay your existing debt. This might work well for you if you find a loan with favorable terms in the form of lower interest, lower monthly repayments, or both. However, think hard before getting a home equity loan for this purpose because you may risk losing your home if you fall behind on payments toward the new loan.

6. Settling Your Debt

Debt relief refers to negotiating with creditors or debt collection agencies with the aim of reducing the total amount you owe. If your creditor agrees, you are required to repay the debt through a single lump sum payment.
While several debt relief companies provide this service, seeking advice from a debt relief attorney is a better idea. This is because while the former work solely for profit and typically require a significant upfront fee, the latter holds your interest first and can guide you through all your other debt relief alternatives as well.

Conclusion

If you feel burdened with debt and think you might be on the path to bankruptcy, the first thing you need to do is contact a nonprofit credit counseling agency. Don’t take drastic measures such as dipping into your retirement account, as it would have a negative long-term effect. If you’ve already sought credit counseling and aren’t sure of how to avoid bankruptcy, you may benefit by seeking advice from an attorney who specializes in handling debt-related cases.

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