5 things to try before filing for bankruptcy

5 things to try before filing for bankruptcy

If you use credit for whatever reason, bankruptcy is a reality that is always looming. Job losses, unforeseen circumstances, acts of God, emergencies, activism are a few reasons why you could be facing tough times financially, but when you do, filing for bankruptcy may be a good way of fixing it.

So what exactly is bankruptcy? Well, bankruptcy is a legal process that allows you to wipe out your debts and turn on a new leaf. While it could put a halt to legal action against you or foreclosure, it shouldn’t necessarily be your go-to choice. Notably, there’s are massive costs associated with filing for bankruptcy, from the court filing fees to the attorney fees. Let’s not forget that a bankruptcy filing lingers on and affects your credit rating for up to seven years, depending on whether it is a chapter 7 bankruptcy or a chapter 13 bankruptcy.

It is a great last resort option but before you file for bankruptcy, consider some of these approaches.

Make a deal with your creditors

Creditors don’t like taking risks when they don’t have to. So if you have something you can use to make a deal with, say, property, income, savings, and other assets, you can negotiate a reduction of your debt rather than file for bankruptcy. This could mean that you settle a debt for less than what you owe, which is the entire premise of chapter 13 bankruptcy.  It is not detrimental to your credit, and once your financial situation stabilizes, you can borrow better than if you filed for bankruptcy. You can seek the help of a bankruptcy lawyer or counseling agency to help with negotiations if you feel uncomfortable doing it yourself.

Debt consolidation

It is possible to compel all your debts into one debt instrument with low and manageable interest rates. If you can anticipate financial hardship in days to come, you can ask your debtors to pool all that you owe to one lump sum, whereby you can also negotiate sustainable repayment plans. Debt consolidation works as a loan with lower interests, so you can repay all your creditors and have only a single loan to worry about.

Take insurance

Some of the causes for bankruptcy are unforeseen. That said, you can always cover yourself and your property from any eventuality that will prevent you from servicing your loans. For example, if you were to have a fire, health, homeowner, or even motor vehicle insurance, you can be sure that if anything were to happen, you wouldn’t lose out on your property. Health insurance or life will protect you if you can no longer generate an income to service your loans in the future.

Debt counseling

It is the lesser of two evils, really. When opting for chapter 13, bankruptcy will appear on your credit report, participating in a debt counseling program will not. Being involved in a debt payment program means that you agree with the debt counseling agency to develop a plan to make payments to your creditors in installments. Of course, there are advantages and disadvantages to both. While a debt counseling plan will protect you from the action of creditors, a single creditor can pull out of it and put the whole arrangement in jeopardy. Likewise, there is the issue of conflict of interest given that many debt counseling agencies are funded by creditors – an issue that all fades away if you are sure you can pay all your debts within the timelines agreed to.

 Adjust your lifestyle

Adjusting your spending is similar to bracing for impact. If you expect that your financial situation will be in turmoil in the future, changing your lifestyle will allow you to have a savings cushion for when the time comes.  This will mean that you can have enough money to still service your loans and prevent filing for bankruptcy entirety.

If you find yourself in a tough spot and are forced to file for bankruptcy, be sure to consult a bankruptcy attorney first. After all, this is not a step that should be taken lightly. With the help and guidance of a bankruptcy attorney, you can better understand what your options are and make well-informed decisions on whether you should make a Chapter 13 or Chapter 7 bankruptcy filing if declaring bankruptcy is the only choice you have. Call us to schedule your free consultation! 314-298-0305