While some people view filing for bankruptcy as the quickest way to get out of debt and start anew, the process is not nearly as smooth and hassle-free as you might think. Though some of your debts will be discharged, the incident will appear in your credit report for at least the next seven years, making it harder for you to get credit approval in the near future. Moreover, you will still have to make ongoing payments to some creditors and attend mandatory credit counselling and financial-management education.
Some people may argue that your credit rating is already poor because you’ve been struggling with debt prior to filing for bankruptcy. Sometimes it is the best way forward, for instance after the sudden loss of a big client or facing an unexpected medical bill.
Often times, bankruptcy is the result of unfortunate financial decisions that force you into debt. Fortunately, you can avoid bankruptcy by:
First, determine how your spend your money. Create a budget to identify your monthly costs and spending habits. Reduce or eliminate some items accordingly. For instance, you can cut up your credit cards, switch to a smaller economical car, move to a less expensive neighbourhood, sell your boat, choose cheaper vacation holidays, and so on.
Even if you file for bankruptcy, you will still have to pay off the debts that are not discharged. Re-examine your business and identify any expenses that you can reduce or afford to eliminate. From there, you can divert those funds to repaying your debts. You could also liquidate some of your surplus inventory or business assets and use the money to pay off creditors.
If you owe suppliers and other creditors a large sum of money, they will not be able to receive what they’re owed if you file for bankruptcy. Consider informing your creditors about your financial difficulties. If you show your willingness to continue making the payments, they may reduce the interest rate, lower your monthly payments, or do both to help ease your burden and increase the likelihood of clearing payments that are outstanding.
In fact, many financial institutions have hardship programs to help struggling debtors get out of tough situations without filing for bankruptcy.
If negotiations with your creditors are not successful, you should seek professional help. A consumer credit counsellor has a wealth of experience dealing with all kinds of creditors, and can help you get the interest rate or monthly payments reduced to a manageable level.
Actually, credit counselling is mandatory before filing for bankruptcy. Having a professional examine your budget can help reveal areas where you can save and transfer those funds to debt repayment.
Lastly, you should make every effort to maximise your income. Financial challenges often reduce your quality of life and lower your self confidence. Find ways to increase your income. It will help you get out of debt faster, avoid borrowing, and allow you to grow your savings.