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.
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Why should you avoid bankruptcy
Watch out for the 6 reasons of avoiding bankruptcy.
How to avoid filing bankruptcy
Check out the 5 alternative ways to avoid bankruptcy.
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.
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.
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 repayment plan.
5 Useful tips to avoid bankruptcy
Here are a few useful tips to avoid bankruptcy and manage your financial situation efficiently.
- Reduce your spending and practice frugal lifestyle.
- Increase your income and use the amount to repay your existing debts.
- Sell assets you don’t need and use sale proceedings to repay debt.
- Request your creditors for an alternative payment and thus avoiding bankruptcy.
- 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.
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
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.