Top 10 Tips to Avoid Bankruptcy

March 10, 2010

Author: William M. Davis

Bankruptcy is never the first choice of any individual or company who is facing a financial crisis. However, every year thousands of individuals are faced with this choice of filing for bankruptcy due to the protection it gives them to reorganize their lives and businesses. This may sound good on the face of it, but in reality, filing for bankruptcy severely restricts your purchasing power, as individuals must make stringent changes to get out of debt. In addition, filing for bankruptcy remains on your credit record for at least ten years.

There are some steps that individuals can take to avoid bankruptcy. This advice is not a legal binding, as individuals will face their own scenario and this will give the basic idea on how to handle situation when in bankruptcy. However to avoid bankruptcy, individuals can:

1. Good Financial management: The best way of avoiding bankruptcy is through good financial management. Always put away something for a rainy day. This money must only be touched only in cases dire emergencies.
2. Increase income: The first step in avoiding bankruptcy is to increase your monthly income. This can be achieved by getting a second job. It does not matter how small the salary is per week, it all adds up at the end of the month and can go a far way in reducing your debt.
3. Stop using credit cards: Credit cards encourage you to spend and are one of your main sources of financial demise. Do what you have to do, freeze them, hide them whatever, but remove them as a source of finance for your daily expenditure. You can keep one only for emergencies.
4. Debt consolidation: Refinancing is another good way of avoiding bankruptcy. Under refinancing, the refinancer will pay off all your existing debt and give you a new loan with a more reasonable repayment schedule over a longer period. This may also in the short-term increase your liquidity as more cash becomes available from the reduced monthly payments.
5. Taking a second mortgage: If you own a house and its value can cover the extent of your debt, a second mortgage loan is a good option. However, if its value does not cover your debt, this is not a good option.
6. Selling valuables: Being on the brink of bankruptcy is a dangerous time. As a result, serious decisions must be made. Assess what valuables you possess that if sold can bring in some much need money that can contribute to relieving your debt.
7. Selling your car: Unlike a house, the value of cars will depreciate. Selling your car now, will give you more money than delaying it until next year, or whenever the crisis becomes critical.
8. Budgeting: When bankruptcy comes knocking at your door, budgeting can be a life savior. Implement strict budgeting conditions. Every month write down what you need and not you want before going shopping.
9. Life style changes: One must adjust their lifestyles to suit their financial conditions. Do not go clubbing if you know your rent or credit card is not yet paid. Reduce your power consumption and other non-essential utilities.
10. Negotiate with creditors: If you have exhausted all your options in trying to streamline your finances, then try renegotiating with your creditors to give you more time or the ability to make smaller monthly re-payments.