How To Avoid Bankruptcy
Tips to avoid bankruptcy
If you file for bankruptcy, it will appear on your credit report for up to 10 years, which will have a major impact on your ability to get credit, qualify for loans or get a mortgage to buy a home. Avoiding bankruptcy is always a better idea than filing for it, and if you're facing debts you simply cannot pay, you should learn about how to avoid bankruptcy so you can assess all your available options.
In broad terms, to avoid personal bankruptcy, you will need to negotiate with your creditors. You can do this yourself, or take advantage of credit counseling services who have professionals on staff to do this on your behalf.
Ways to Avoid Bankruptcy
Here are the top tips to avoid bankruptcy and get back on the path to restoring your good credit:
- Sell off assets. If you have some items of value, you may have to convert them into cash to avoid personal bankruptcy. Use the proceeds you raise to pay off your high-interest debts first, so that you reduce the principal owing and numb the sting of the interest charges. If you have significant equity in your home, you may be able to get a second mortgage and use the proceeds to pay off credit card debt; this will almost always save you thousands of dollars in interest (though it does come with certain risks that you should talk to your loan officer about).
- Work with your creditors. If creditors or debt collectors are after you, work out an agreement with them that you can live with. Remember: they would rather get something than nothing, so you'll find that most of them will be more than willing to work with you.
- Create a budget. Work out a monthly budget that cuts back on expenses and applies as much money as possible towards paying off your debts.
- Avoid using credit. This goes hand-in-hand with creating and sticking to a budget you can live with. Adding to your debt load is the last thing you should be doing right now, so cut up your credit cards or close your accounts if you have to.
Filing for bankruptcy should always be an absolute last resort. Using these tips to your advantage can help you avoid this damaging action and get you on the path to becoming debt-free.