Avoid bankruptcy - 7 Reasons and 5 ways to avoid filing bankruptcy

By Good Nelly

Ask Nelly

Are you looking to file bankruptcy as a way out of debt? Do you know how it can affect your financial situation? Filing for bankruptcy when you're knee deep in debt can make things worse for you if you aren't careful. Not only does bankruptcy ruin your credit but you may lose your property as well. Check out the following topics to find what bankruptcy is all about, why, and how you should avoid bankruptcy.

• What is bankruptcy?
• 7 Reasons to avoid bankruptcy
• 5 Ways to avoid bankruptcy

With proper help you can

• Lower your monthly payments
• Reduce interest rates
• Waive late fees
• Reduce collection calls
• Avoid bankruptcy
• Have only one monthly payment

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What is bankruptcy?

Bankruptcy is a federal court process where a debtor gets the chance to eliminate or reorganize his debts through sale of assets or by following a repayment plan. Consumers typically file either Chapter 7 or Chapter 13 personal bankruptcy depending upon their financial situation.

7 Reasons to avoid bankruptcy

Here are 7 reasons to avoid filing bankruptcy.

1. Your credit is badly hit: Chapter 7 and Chapter 13 bankruptcy have a negative effect on your credit. It brings down your credit score by around 200-250 points. Moreover, the negative entry stays on your credit report for 7-10 years depending on the type of bankruptcy you file, thereby making it difficult for you to qualify for new loans and credit for the next 3-4 years.
2. You may lose your property: There are certain assets that will be sold to repay your debts under a Chapter 7 bankruptcy plan. Depending on your situation and your state's laws you may end up losing your home and your car.
3. Not all debts can be eliminated: It's a myth that bankruptcy can get rid of all of your debts. Back taxes, student loans, child support, alimony/spousal support, and a few other debts cannot be gotten rid of through bankruptcy. Therefore if you are looking to get rid of these kinds of debts, you should avoid bankruptcy. What you should do is, negotiate a debt settlement or an alternative payment plan with your creditors.
4. Creditors/lenders may repossess property: 30 Days after your bankruptcy case ends, any creditors whose debts have not been discharged can sue you for the debt if you are behind on your payments. If you have reaffirmed your home and car loans and kept the property, you are not relieved of the personal responsibility to pay on the mortgage or the loan and their liens remain on the property.
5. Adverse effect on your finances: Bankruptcy has an adverse effect on your financial situation. For instance, you won't be able to buy or even rent a home or car. Filing bankruptcy can also influence the status of your security clearance if you don't inform your employer about your bankruptcy and why you've filed for bankruptcy.
6. You may not qualify for new credit: Getting approval for new loans/credit is tough after you've filed bankruptcy. It'll take at least 2-4 years for you to qualify for a secured loan (such as mortgage or car loan) unless you apply for a secured credit card with a high interest rate. Even unsecured loans are hard to qualify for if you cannot avoid bankruptcy.
7. Not all retirement plans are protected: Depending on your state's exemption laws, your 401ks, IRAs, government pension, social security, or other retirement plan may be tapped to repay your debts during Chapter 7. So, if you wish to protect your retirement savings, find out how to avoid bankruptcy with any of the 5 alternatives below.

5 Ways to avoid bankruptcy

Check out these 5 alternatives that'll help you avoid filing bankruptcy.

1. Debt settlement: This can be an option, especially when you cannot keep up with the minimum payments on your debts. A debt settlement (or debt reduction) program is where you negotiate with your creditors to reduce your debt.
   
   You can either get help from professional settlement services or settle debts on your own. Check out how to settle your debts yourself and avoid bankruptcy as a way out of your debt problems.
2. Debt consolidation program: If you wish to avoid bankruptcy and make a single monthly bill payment at a reduced interest rate, then a debt consolidation program may be the right choice.
   
   A debt consolidation program is where you consolidate your bills into one easy monthly payment by taking out a low interest loan to pay off your debts. Thus, it makes sense to choose debt consolidation in order to avoid bankruptcy.
3. Debt management: This is where a credit counseling agency or a debt management firm helps you reduce your interest rates and penalties. You then make your monthly payments to the consolidation company and comfortably manage your bills to get debt free faster.
4. Payday loan consolidation: If you're struggling with payday loans and want to avoid bankruptcy, then payday loan consolidation is what you should choose. This is where you consolidate and replace multiple payday loans with an affordable monthly payment.
5. Do it yourself plan: The Do it yourself (DIY) plan is where you try getting out of debt on your own without going for professional debt help. To make your DIY plan effective, you need to negotiate with your creditors and offer them an amount depending upon how much you can afford to pay. You'll have to plan a budget to manage your daily expenses in addition to paying off your debts.

If you're having trouble paying your bills, the best thing is to contact your creditor ASAP and work out a payment plan you can afford. It'll help you avoid bankruptcy and protect your credit in times of financial crisis. What's important is to analyze your financial situation and find an appropriate solution to your debt problems. Compare the consumer debt solutions in order to choose the one that's best for you.