How to Avoid Personal Bankruptcy
Written by Robert DeMarco
No one sets out to file for personal bankruptcy, but it happens all too often. If you’re feeling overwhelmed by debt and don’t see a way out, you may be considering bankruptcy as an option. Before making any decisions, it’s essential to understand the consequences of filing for bankruptcy and what other options are available to you. Here we will give you a basic understanding of how bankruptcy works and provide some tips on avoiding it.
Increase Your Earnings
An increase in your monthly income can help you pay down your debt. To make extra money, work extra hours, take on a part-time or side job.
You can also sell your unwanted items (such as jewelry or furniture) and use the money for debt repayments. It’s possible to fall behind in your payments and end up facing further action by creditors. It is better to act quickly.
Shorten Your Loan Term
In case you have credit cards, cut them up. That way, you’ll stop spending on things you don’t need and put the money towards your debts instead. If you can’t manage to pay it all off at once, try to consolidate your loans so that repayments are in one manageable monthly amount. This will free up some cash each month, which you can use to repay debts.
If you have a car, see if it’s possible to get one of the following:
– A smaller vehicle that doesn’t cost as much per year in fuel or insurance premiums.
– Reduced interest rates on your loan to pay less annually.
– A longer repayment term or a lower monthly repayment.
Don’t Take on More Debt.
In case you are already struggling with debt, getting more loans only worsens the problem. So don’t buy things with credit cards if possible and avoid taking out new loans for any reason. Seeking Consumer Bankruptcy Lawyer advice can help you make better financial decisions.
Although debt settlement may not be the best solution, it is something you might consider if you are on the verge of bankruptcy. Settlement of debt involves paying a percentage to the creditor of the amount due. You should be ready to make a lump-sum payment once you have reached a settlement agreement.
Some companies will help you settle your debts, but they charge a fee. You can also do it yourself. It will help if you start paying attention to obligations already in collections or charged-off. Your credit score may be affected if the debt relief company encourages your intention to fall behind in payments to negotiate a settlement.
Do not settle any debt that is past due. To keep your debts in good standing, you should continue to make the minimum payment on all outstanding debts. While it may take some time to pay them off ultimately, you will still be able to maintain your credit rating.
Cut Your Expenses.
You may be able to spend less money to reduce your debt. It is possible to cut cable and cancel your gym membership. You can also avoid eating out for dinner. This can help you to pay down your debts and avoid bankruptcy.
Reexamine your budget and consider changing to a different one. This will allow you to find a less expensive and more affordable debt repayment plan.
Take Control of Your Spending
It’s essential to keep track of your cash flow and where the money goes each month. Try doing this for a couple of months and review how you’re spending your money to see areas that need improvement. If you do not know where your money is going, start by tracking it for a month.
Jot down everything you spend money on every day. If it’s a cash purchase, write down what you bought and how much it cost. Or, if you use a credit card, note the date of the transaction and record all your expenses for that day. You can also keep track of your spending by setting up a budgeting app on your smartphone.
Create a list of all your expenses and prioritize them into essential and nonessential categories. Hold back on unnecessary purchases or use less of the services you pay for. Consider if any items can be cut from your budget, such as going out for coffee during lunch at work each day, which may bring out your creativity.
Organize Your Debt
If you have several different debts, it can be challenging to figure out the best way to pay them off. Consumer Bankruptcy Lawyer companies usually recommend that you consolidate your debts into one monthly bill so that it’s easier to repay with just one payment.
Suppose you’re struggling to manage several different credit cards, loans, and other consumer credit lines. In that case, it may be possible to transfer some or all of them to a single debt consolidation.
File for Consumer Proposal
In some situations, filing a Consumer Proposal may be an option. This is a formal agreement between you and your creditors that allows you to make a single monthly payment of a set amount for a set period. The Consumer Propose program will enable you to repay your debt over a longer time frame while Consumer Bankruptcy Lawyer Consumer Proposal staff negotiate with your creditors. Consumer Proposals are regulated and administered by the Office of Consumer Affairs, and you must follow specific procedures to file a proposal.
Consult A Consumer Credit Counselor.
A professional consumer credit counseling agency can help you if you feel overwhelmed. A credit counselor will review your finances and help you create a budget. They may also work with creditors on a debt management plan.
Credit counseling is required before you can file for bankruptcy. It’s worth seriously considering this alternative.
A debt management plan allows you to repay your debts within three to five years. Each month, you make a lump-sum payment to a credit counseling agency. The credit counselor first negotiates with creditors to lower your monthly payments. The agency then distributes your monthly payments to creditors.
Work Out a Deal With Your Creditors
Many creditors will work with you. However, it would help if you proactively communicated with them. Tell your creditors that you are in financial trouble and want to avoid bankruptcy. Ask your creditors if they are willing to help you pay off the debt. Many credit card companies offer payment assistance for these types of situations. Make a deal with your creditors that you can repay.
Consider Consolidating Or Resolving Your Debts.
Consolidating debts, which means paying off high-interest debts with one lower-interest loan, is often used to avoid bankruptcy. It can be an excellent strategy if you can qualify, but you must have the courage not to fall behind. People can go on a spending spree if they don’t feel under pressure because they cannot pay their debts. Not a temporary solution, debt consolidation should be a long-term strategy.
You also have the option to settle your debts. Instead of decreasing the number of creditors, the debt relief agency reduces your debt by negotiating with them. In this scenario, the debt relief company will deal with your creditors to reduce the amount of your debt. In case you pay them off now, they may agree to forgive a portion of the remaining debts. Both strategies have strengths and weaknesses, so consider their pros and cons.
Consider Enlisting The Help Of A Qualified Professional.
It is possible to be cheated by unscrupulous companies. It seems counterintuitive to say that you can pay me a fee to help your debts disappear. Those looking for quick fixes may be tempted by “credit counseling” companies. Experts can help you when you’re in trouble.
Before you choose this route, consider that the simplest–and perhaps most practical–counseling that you can get is the suggestion to close your wallet and curb your spending. You may still need more specific advice. Make sure to research all options.
The Risks of Filing for Bankruptcy
The BAPCPA may require those filing bankruptcy to:
- Participate in mandatory credit counseling
- Continue to make payments to creditors
- Participate in financial-management compulsory education
Filing for bankruptcy does not automatically exempt you from lawsuits or evictions. If you haven’t paid any fines, your driver’s license may be suspended. Tax returns and wages may be seized to offset payment by the Consumer Bankruptcy Lawyer, the creditors. A poor credit rating can also result in an inability to borrow money at standard interest rates for as long as 10 years. Because of the high-interest rates on loans, this can lead to higher debt.
A Long-Term Change
There are a plethora of reasons you could find yourself in bankruptcy. Not all of them are your fault, as Americans who have experienced the pandemic firsthand. You can use your recovery time to determine the best steps to take in the future. To gain greater security in the future, one critical step is to build an emergency fund or a larger one than you had previously.
Pay attention to any actions that could have made you more vulnerable to financial disaster. Many people go through bankruptcy and then become serial bankruptcy filers. They use the recovery from bankruptcy to continue overspending.
It would help if you got out of debt to improve your financial situation. It is possible to avoid bankruptcy for ex-overspenders who are willing to exercise more self-control and avoid the other problems that can come with it.
Final Thoughts
You can avoid bankruptcy by looking at ways to make more money, spend less and talk with your creditors. Credit counselors are also available. These strategies can be combined to assist you to manage your debt and get it paid off without the need for court assistance. You will avoid bankruptcy appearing on your credit reports, and you will be free of your debt if you succeed.
You should take the time to understand how bankruptcy works if you decide to file for bankruptcy. After considering all options, you must make an informed decision. Do not worry about your credit score for the short term. Instead, it would help if you focused on getting rid of your debt. Once your debt problems are over, you can start rebuilding credit.
Consumer Bankruptcy Lawyer in Plano, Texas
DeMarco Mitchell, PLLC. is a full-service law firm representing personal bankruptcy cases to help families negotiate their way out of debt and avoid filing for bankruptcy protection. We are here every step of the way with our clients to provide peace of mind during this difficult time. In case you need more information on how we can assist your family or would like us to schedule an initial consultation, please call today at (972) 578-1400 or visit us online.
Related Articles
Related
Chapter 7 Attorney: A Guide to Navigating Bankruptcy and Choosing the Right Legal Representation
Chapter 7 Attorney: A Guide to Navigating Bankruptcy and Choosing the Right Legal Representation Are you considering filing for Chapter 7 bankruptcy? Navigating through the complexities of bankruptcy law can be overwhelming, but with the help of a knowledgeable...
Navigating Chapter 7 Bankruptcy in Texas: Key Roles of a Texas Bankruptcy Lawyer and When to Consult One
Navigating Chapter 7 Bankruptcy in Texas: Key Roles of a Texas Bankruptcy Lawyer and When to Consult One Are you grappling with overwhelming debts and contemplating bankruptcy as a possible way out? Are you unsure about the proceedings and when to take that pivotal...
Understanding the Different Types of Bankruptcy for Individuals in Texas
Understanding the Different Types of Bankruptcy for Individuals in Texas If you're struggling with debt and considering bankruptcy as a solution, it's essential to understand the different types of bankruptcy available for individuals in Texas. At DeMarco Mitchell,...