While bankruptcy is sometimes a necessary option for businesses, it should only be considered after weighing all other options. There are many things that you can do to avoid bankruptcy, such as:
One option is debt consolidation. This involves combining all of your debts into one payment, which can save you money on interest and make it easier to manage.
1. Create a budget
If you’re spending more than you’re bringing in each month, you need to make some serious changes. The first step is creating a budget and sticking to it. It may not be fun, but it will save you from the consequences of bankruptcy.
Once you know what you’re spending, cut back on non-essential expenses. You don’t need a streaming service or huge cell phone plan, and you probably can go without going out to dinner two times a week.
Another option is to consolidate your debt into one monthly payment. This can help you pay off your debt faster and avoid bankruptcy. This can be done with a credit counseling program, personal loan, debt management plan, balance transfer credit card or peer-to-peer online lender. Be sure to research these options carefully to ensure you’re getting the best deal.
2. Cut back on non-essential expenses
Many people fall into debt because expenses start outpacing income. Sometimes this happens very suddenly, such as when a spouse becomes ill or you get laid off from your job. Other times the effect is gradual – interest rates increase, mortgage payments go up and credit card debt adds up over time.
If you are struggling to make ends meet, the first thing you need to do is cut back on non-essential expenses. This isn’t fun, but it is essential to avoiding bankruptcy.
Some examples of non-essential expenses that can be cut back include cable TV, a high cell phone plan and dining out. You should also shop around for better prices on utilities, as these can be reduced significantly if you look hard enough.
If you have any money that may be protected in bankruptcy, such as social security or a settlement from a personal injury lawsuit, put it in a separate account where it is clear what it is for and only use that money for your bills. Do not make large cash withdrawals or deposits, as these can raise suspicion with creditors.
3. Negotiate with creditors
Sometimes unforeseen circumstances make it impossible to stay out of debt. Whether the cause was something sudden, like a medical crisis or a job loss, or slow and steady, such as interest rate increases on credit cards and mortgages, expenses can easily outpace income.
One way to avoid bankruptcy is to speak with creditors and try to renegotiate payment terms. This can be a difficult step, but it is important to be open and honest. Creditors may be more willing to work with you than you think.
If you have money that you would want to protect in a bankruptcy, a Harrisburg PA bankruptcy attorney may tell you to consider creating a separate account for this money. This could include funds from a lawsuit, social security, or a settlement from a personal injury claim. Also, be careful not to buy anything on credit shortly before filing. This can trigger an objection to the debt being discharged in bankruptcy court. This is known as a 'fraudulent transfer' and can cause delays and even lead to the denial of a bankruptcy discharge.
4. Stop all payments
Ultimately, you need to stop all payments so that you can concentrate on paying off your debt. You can start by cutting back on non-essential expenses, like expensive cell phone plans, cable TV, and dining out. Instead, you should focus on your “four walls'' – food, water, shelter, and transportation.
Creditors are often willing to negotiate a settlement or other payment arrangement with those who are behind on their debt. This is because they know that if you file for bankruptcy, they will likely get nothing. Therefore, it’s important to communicate with creditors proactively.
If you’re not making enough money to pay off your debt, consider applying for a new line of credit or debt consolidation loan. This will help you reduce your interest rate and make it easier to pay off your debt. Then, you can focus on building up your savings again and stay out of bankruptcy. If you need more financial support, there are also debt solutions such as individual voluntary arrangements (IVAs) and debt relief orders.
