Avoid bankruptcy - Why and how should you avoid bankruptcy?

Video on Avoid filing bankruptcy by Michael Bovee

Avoid filing bankruptcy

Do you know how it can affect you now and in the future?
your financial situation reached a point where you are considering bankruptcy as a way out of debt?
It is also possible to keep home equity and other personal property when you use other strategies outside of the bankruptcy process.
Filing for bankruptcy when you're knee deep in debt can be the correct step to take, but are you aware of other well established methods to successfully avoid bankruptcy?

may be possible to keep a bankruptcy off of your credit report for the next 7 to 10 years.
Check out the following topics to find what bankruptcy is all about, why, and how you should avoid bankruptcy.

What is bankruptcy?

Bankruptcy is a federal court process where you get the chance to eliminate or reorganize your debts through discharge (which can mean the sale of assets), or by following a repayment plan that will often last 5 years. Consumers typically file either Chapter 7 or Chapter 13 personal bankruptcy depending upon your financial situation.

How much
debt settlement
can save you

Why should you avoid bankruptcy

Watch out for the 6 reasons of avoiding bankruptcy.

Your credit is badly hit
Chapter 7 and 13 bankruptcy have a negative effect on your credit. It can bring down credit score by around 200-250 points. Moreover, the negative entry stays on credit report for 7-10 years depending on the type of bankruptcy you file, thereby making it difficult to qualify for new loans and credit for the next 1 to 5 years. A bankruptcy may only remain on your credit report for 7 to 10 years, but you will find the question "Have you ever filed for bankruptcy" and "If so, when" on many types of financial forms throughout your adult life.
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, student loans (other than the most extreme circumstances) 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. You can look to budget around debts that cannot be discharged and negotiate other bills in a debt settlement or an alternative payment plan with your creditors.

Property may be affected
There are certain assets that can be protected and other assets that you may not be allowed to keep under a Chapter 7 bankruptcy plan. Depending on your situation and your state's laws you could end up losing items that may otherwise have been avoided.
Adverse effect on your financial future
Bankruptcy has an adverse effect on your financial situation. For instance, filing bankruptcy can influence the status of your security clearance if you don't inform your employer about your bankruptcy and why you've filed for bankruptcy, and can also limit future job opportunities depending on the field of work you are in.

You may not qualify for new credit
Getting approval for new loans/credit is tough after you've filed bankruptcy. It'll take anywhere from 2 to 5 years for you to qualify for a secured loan (such as mortgage). Unsecured loans are hard to qualify for if you file chapter 13 bankruptcy for the entire 3 to 5 year repayment plan.
Not all retirement plans are protected
While many retirement accounts are protected from creditors in a bankruptcy, not all are.

How to avoid bankruptcy

Check out the 5 alternative ways to avoid bankruptcy.

This is a legitimate option, especially when you cannot keep up with the minimum payments on your debts. A debt settlement (or debt reduction) program is where your creditors cut down your debt amount by 40-60% of what you owe.

What you need to do is, negotiate with creditors or collection agencies in order to reduce your debt amount. You can get help from professional settlement services. Check out how to get help settling your debts. You can also settle debts on your own. Check out how to settle your debts yourself and avoid bankruptcy as a way to get out of debt.
If you wish to avoid bankruptcy and make monthly bill payments at reduced interest rates, then debt consolidation (or bill consolidation) program may be your right choice.

A debt consolidation program is where you consolidate your bills into one easy monthly payment by taking out a lower interest loan to pay off your debts. It makes sense to choose debt consolidation in order to avoid bankruptcy when you still have good credit and a dependable income.
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 credit counseling company and comfortably manage your bills to get debt free in a predictable and faster time frame.
If you're struggling with payday loans and wish to avoid bankruptcy, then payday loan consolidation is what you may choose. This is where you consolidate and replace multiple payday loans into an affordable monthly payment.
The Do it yourself (DIY) plan is where you try getting out of debt on your own without going for professional debt help services. To make your DIY plan effective, you will need to negotiate with your creditors and come up with a monthly payment you can afford to pay. You'll have to plan a budget to manage your daily expenses in addition to paying off your debts. This option provides you flexibilities missing from a chapter 13 bankruptcy repayment plan.

The Do it yourself (DIY) plan is where you try getting out of debt on your own without going for professional debt help services. To make your DIY plan effective, you will need to negotiate with your creditors and come up with a monthly payment you can afford to pay. You'll have to plan a budget to manage your daily expenses in addition to paying off your debts. This option provides you flexibilities missing from a chapter 13 bankruptcy repayment plan.

5 Useful tips to avoid bankruptcy

Here are a few useful tips to avoid bankruptcy and manage your financial situation efficiently.

  1. Reduce your spending and practice frugal lifestyle.
  2. Increase your income and use the amount to repay your existing debts.
  3. Sell assets you don’t need and use sale proceedings to repay debt.
  4. Request your creditors for an alternative payment and thus avoiding bankruptcy.
  5. Ask your friends and relatives to help you out and set up a plan to repay them on time.

When should you avoid bankruptcy?

Here are some more situations when you should look for options to avoid bankruptcy.

  • Even if it’s a bit difficult but you have the ability to consolidate or settle your unsecured debts.
  • You want to protect your credit score from getting a major hit.
  • You want to protect your creditworthiness of taking out a loan with favorable terms and conditions in the near future.
  • You want to maintain a goodwill with the credit card companies from where you’ve taken out cards.
  • You have good assets that you have a chance of losing through bankruptcy.
  • You have inherited certain asset which you have a chance of losing through bankruptcy court.
  • You want to avoid any legal hassle.

FAQ:

Q: Can filing bankruptcy solve back tax problem

Ans: You have to fulfill certain eligibility criteria to discharge your tax debt by filing a Chapter 7 bankruptcy. However, if you’re filing a Chapter 13 bankruptcy, then your tax debts will get discharged if it’s a nonpriority debt; but in case of priority debt, you have to pay it in full.

Q: How to avoid bankruptcy and repay student loan debt

Ans:

You have to qualify the brunner test if you want to get discharge from your student loan debt. However, there are certain options to avoid bankruptcy. To repay your federal student loans, you can opt for income-driven plans or request for deferment or forbearance to repay your student loans with ease.

Last Updated on: Mon, 15 Apr 2019