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Bankruptcy is a process governed by federal laws that will cancel many of your debts through an order of the court. It does not cancel ALL types of debt, however, and that is important to note before filing – if the bulk of your debt is unable to be canceled, will it really help you or simply cause your credit score to take a further dive and continue to haunt you for at least 7 years, if not more?
For creditors, when their debtors file bankruptcy, they are given a chance to get a portion of the money that the debtors are obligated to pay back, as designated by the court. If debtors do file for bankruptcy, creditors must immediately stop attempts to collect the debts which provides temporary relief and a period of less stress for the majority of individuals filing for bankruptcy, but it doesn’t stay for long! After a bankruptcy is filed, you’ll find it difficult, if not impossible, to gain any kind of credit for several years; your employer can let you go or a new employer can refuse to hire you based on your bankruptcy; and it can be difficult to find a place to live if you don’t already have a home.
Sell Your Stuff
The first thing you can do if you find yourself on the brink of filing for bankruptcy is to sell your “stuff”, otherwise known as your assets. Yes, this hurts, but if you go through with a bankruptcy you can pretty much say goodbye to everything you own anyway.
If you have a car loan, try to turn the vehicle in and get something used and without a car payment. If you already have a car without a payment, consider selling it if it’s worth much; and buying a less expensive car and using the rest of the money to apply towards bills. If possible, go down to one vehicle for the family for awhile.
If you have a mortgage and a home, consider selling the home to live someplace less expensive.
Sell any belongings you don’t NEED that can give you some much needed money right now and apply all money from the sale of items to your debt.
Increase Your Income
You may temporarily need to work more often and find ways to increase your income in order to relieve some of the money pressure you’re experiencing. This may include getting a night job if you work during the day; working weekends if you currently only work during the week; or finding ways to earn money from home on your computer or otherwise. There are many ways to earn additional income, and you can do many of them without any investment beyond your time. Yes, working more cuts into family time, but if you realize it’s temporary and the additional money will be used to repay your debt and avoid bankruptcy, you can get through this temporary period.
Consider odd jobs for neighbors (lawn mowing, dog walking, and errand service), writing articles online for website owners who pay writers, using the experience and skills you have at your current job as a side business opportunity.
If you aren’t sure how to get business from a side business, then head out for a part time job anywhere you can find one. Don’t hold out for a “high paid” position, because all the time you spend looking can be spent making $8 an hour or so at a part time job near your home. You can keep looking for something better in the meantime, but the idea is to find a part time job to start earning extra income as soon as possible.
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Obtaining a debt consolidation loan can be a good way to help pay off your creditors and improve your credit ratings, which eventually lead to debt elimination. Understand that once consolidating your debts you still have to repay the consolidation loan. If you don’t want to find yourself filing for bankruptcy be sure to plan your monthly budget wisely and avoid rapidly building credit card debt.
The Risk Involved In Secured Debt Consolidation Loans
If you own an asset you can use it as collateral and apply for a secured debt consolidation loan. You will be offered lower rates than an unsecured loan. Your bad credit ratings have some effect on the interest so if you can improve your credit before applying for the loan you are on the best track. Due to the fact that you are using, for example, your house as collateral, you are in the risk of it being repossessed if you are found to be bankrupt. Avoid this by paying back the monthly loan payments and spend money only on things you need.
Once You Have the Cash Pay Off the High Interest Debt
So you’ve successfully obtained a debt consolidation loan with your bad credit ratings and the time has come to pay off your debts. Experts recommend paying of the high interest debt first! After all they are most likely the payments that cost you the most in the long run, debts like; Credit card payments, personal loans and the like.
Borrowing Enough Money to Pay Off all Your Debts
If you are hesitating about how much money to borrow, first calculate how much is the sum you owe. Borrow that amount and a bit extra just incase. There is no use in borrowing less than you owe. The basic idea or a debt consolidation loan is to merge your debts into one main loan thus dealing with one repayment. Make sure to get rid of any extra credit cards. One, maximum 2 per household is enough! If you find it isn’t enough than reduce your expenses. Remember to make sure that your income is enough to cover the repayment of the consolidated loan and any other expenses you may have. If you treat this carelessly you will find yourself eventually filing for bankruptcy. Information about debt consolidation with a bad credit score, can be found online.
Compare equity options for the best home equity loans interest rates. You may want to find online mortgage refinancing loans information for more debt relief options.
Desperate financial times sometimes call for desperate measures like bankruptcy but just know that avoiding bankruptcy is possible. If you are serious about attaining financial freedom and peace of mind while honouring your debt, there are several ways of doing so. Without bankruptcy on your record, you could eventually regain a sterling credit rating.
Bypass Bankruptcy with IVAs
An Individual Voluntary Arrangement, also known as IVA, is a legal contract with your creditors to repay your debt – either in full or for a mutually agreed upon reduced balance. A time frame for repayment is chosen and this payment arrangement typically is checked regularly by an independent accountant or solicitor to ensure you are in compliance with the terms. You can bypass bankruptcy with IVAs and save your credit history but be aware that the repayment schedule can be very exacting with little room for error or those emergencies that drain your discretionary income.
Loan consolidation
A debt consolidation loan is an option to prevent bankruptcy but it is often not advised unless you are committed to changing your lifestyle and spending habits permanently. Often, people in debt take out a consolidation loan to restructure debt but do not change their lifestyle to live within their means. Because most of these loans are secured with property such as your house or car due to your poor credit history, you could end up losing them if you do not adhere to the repayment plan for your loan.
Avoiding Bankruptcy with a Debt Management Company
Seeking a professional financial opinion through a debt management company may be your best option to circumvent bankruptcy. With the help of a debt counsellor, an arrangement can be made with all of your creditors, typically for a reduced repayment schedule. In fact, you may also buy yourself extra time to repay debt and bypass bankruptcy. Many creditors will work with licensed debt management companies and honour the repayment plan negotiated. They know that if you declare bankruptcy, they likely will never recoup their money. By working with you through the debt management company, they will get paid something. Keep in mind that this option may put some dings on your credit history but it is nothing compared to a bankruptcy. Most plans negotiated can help you be debt free within five years, much sooner than trying to negotiate on your own.
As you can see, there are several ways to manage your debt and bypass bankruptcy. Your individual situation will dictate which option is best for you.
A debt management company offers the most stress-free plan for avoiding bankruptcy. Compass Debt Counsellors would like to help and is available by call or via instant messaging to answer your questions.
The Bankruptcy Abuse and Consumer Protection Act was passed in early 2005 with the intention of reforming American bankruptcy law as we know it.