What is Bankruptcy and How do you Avoid it?

The easiest and most straightforward way to avoid bankruptcy is to not be in debt and if at all you take a loan, see that you pay it off in time. Simple as that!! But is it really that simple. Let’s try and understand.

What Is Bankruptcy?

Bankruptcy is basically an extreme step that you take to give yourself a chance to start all over again financially. It means that you move the court and establish via federal court proceedings that you are simply unable to pay off your creditors. Under federal bankruptcy laws you are then protected from the creditors; they cannot contact you to repay the loan.
Individuals file for bankruptcy under Chapter 7, this is also known as a “straight bankruptcy”. A bankruptcy will allow you retain certain property that is exempt from creditor take-over. Liens on real estate will survive. Most assets will be sold to pay the creditors. Also bankruptcy discharges will stay on your credit report for up to 10 years, affecting almost areas of your life including jobs and ability to get a loan at good rates.

Advantages and Disadvantages of Bankruptcy

The biggest advantage with filing for bankruptcy is that you will not have to repay most of your debts; these will be written off. It could mean the difference between keeping your home and automobile and losing it to the creditor.

But if you think you can wash your hands off child support, student loans, alimony, criminal fines, court restitution orders, certain types of taxes, etc then better think again because these expenses will stay.
Your co-signors too are stuck in the debt with you and any collateral that you have with the lender stays with them till you clear your debt.

How to avoid bankruptcy?

People file for bankruptcy hoping to get out of debt; but you need to see if the effort and drawbacks involved in going insolvent are worth the amount that you can claim as protected from bankruptcy. Here is a practical checklist to do things to get out of debt –
• Look around for assets that you can use to pay off debt and negotiate better terms with your creditors. These could be gold jewelry, stocks, shares, property, etc.

• Earn more – Moonlight, take up a second job to pay your debts. Cut down on costs, have tea without sugar…you get the idea. Have a written spending and saving plan and follow it.

• Stop using your credit card – This is a seriously good idea that you should consider even if you are not under credit card debt. Stop living on credit, when you pay from your bank account and see the money being debited you feel the pinch. Use balance transfer credit cards with no interest during the promotion period and zero balance transfer fee.

• Renegotiate with your creditors – Creditors may be willing to offer you different terms of credit if you can impress them with the seriousness of your situation. If they can see that you may indeed go bankrupt they will most probably help you to avoid bankruptcy; because if you go bankrupt then they will most probably get lose all their money. Involve a debt consolidation agency if necessary.

• Have a debt repayment strategy – Devise a strategy to repay your creditors. Target ones with the smaller loans first and try to pay off as much of principal as possible so that the loan is knocked off from your to-do list. You can also target the larger loans first; this will cost you less overall.

What is Bankruptcy and How do you Avoid it?

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