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Filing Bankruptcy?
Bankruptcy – Most adults have debts that they need to pay each month, some of the most common types of debt are credit card and payday loans. At times people take on a lot of debt which leads to financial difficulties, when someone is undergoing difficulties with their finances, they may consider bankruptcy in order to eliminate the heavy burden called debt.
What Is Bankruptcy?
Those who ask the question what is bankruptcy will need to know some important facts so that they can make decisions that benefit their financial situation in the future. Bankruptcy is the process in which a person, or a business, legally declares insolvency. In other words, a person filing bankruptcy claims that they are not able to pay their debts. In results of eliminating all debt while not being able to apply for any type of credit or loan.
Why File Bankruptcy
People usually file bankruptcy as a last resort when they have tried everything to eliminate their compound debt. Bankruptcy is available in two forms for individuals, such as chapter 7 and Chapter 13. These two chapters have different properties and should be filed depending on the debt of the individual or Business. Here is a brief summary of both chapters:
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Bankruptcy: Chapter 7
With Chapter 7, a person gets a full liquidation and discharge of all unsecured debts like credit cards, personal loans & medical bills.
But it does not remove any court judgements, child support, alimony, student loans or back taxes. Also It will leave a mark on your credit report for 10 years.
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Bankruptcy: Chapter 13
A Chapter 13 allows a person to make a payment plan for 3- 5 years to manage their debts.
Anyone looking to file bankruptcy will need to go through a legal process where a trustee is appointed for them to evaluate their assets and liabilities.
Consider The Following
While bankruptcy can help a person get out of debt or make it much more manageable, it can have long term consequences. Anyone who files bankruptcy will significantly lower their credit score and have difficulty in getting auto loans and a mortgage.
A bankruptcy will also be on someone’s credit report for ten years as well. As a result, of these consequences, it is important for a person to consider alternatives to bankruptcy. Fortunately for consumers, there are plenty of ways to avoid bankruptcy and get out of debt at the same time.
Avoiding Bankruptcy
Whenever a person is looking for ways on how to avoid bankruptcy, they can consider a variety of options. Some of the solutions that they can look into when looking for ways on how to avoid bankruptcy is to lower their expenses and negotiate with the creditors. Consumers can also avoid bankruptcy by prioritizing their debts and looking into debt management services like credit card relief programs or payday loan relief programs.
Cut Your Expenses
For those who are avoiding bankruptcy, one of the best things that you can do is cut expenses. There are some things that people pay for each month that they may not need as much as they do. For example you can:
- Cut your satellite television bill by eliminating some programs.
- Change phone lines to a cheaper company
- Lower home internet speed
- Lease your next vehicle for lower payments
- Avoid eating outside, cook at home
- move in to a cheaper apartment / home
- Preserve clothing, don’t go shopping
- You don’t need the new iPhone, yours works just fine
This can give you some extra money to pay off your debts by cutting expenses. Individuals will see a surplus of cash available to make progress towards paying their debts to avoid bankruptcy.
Negotiate With Your Creditors
Another way in which a person can avoid bankruptcy is by negotiating with their creditors. In this situation, a person will discuss their debt burden with the creditor and request for a lower interest rate or an extension of the due date. They can also request a lower monthly payment in order to decrease their monthly debt burden as well as paying the debts in a timely manner.
Negotiating with creditors is one of the first things that someone should do when they are having difficulty paying their debts. With successful negotiation, a person can make their debt more manageable. If you’re not good at negotiating or don’t know how, I’d consider utilizing the debt management services below.
Prioritize Your Debt
Whenever a person is in debt and is looking for ways to avoid bankruptcy, they will also benefit by prioritizing their debts. While a person may have several debts, there are some that are more important than others. One of the best ways to prioritize debts is to find the ones that have the highest interest rates.
