How To Avoid Bankruptcy: 5 Steps
Here are 5 steps you need to implement today to improve your financial situation and ultimately avoid bankruptcy.
1. Draw A Workable Plan
No matter what else you do to avoid bankruptcy, you need to realize that you have to develop a plan. A workable one you can really implement. And stick with it if you are to see any benefit. The long road will take time but it will happen. The frame work of your plan should include:
- Taking Stock of ALL Your Debts, including credit cards, store cards, hire purchase, bank loans, pay day loans, alimony payments, debts to friends and family and taxes owed if any. This would help you have a clear and accurate amount of what you owe and to whom. Write these down. Also add up your assets and note your net worth. Do not worry if it comes out to be more debt than assets. This is the first step in making things better again.
- Develop A Budget. It sounds simple and everyone hates it, but a budget will help you to see where your money is going and helps you to actually get your money where it needs to be. Allow yourself spending money as well as safety money for those unexpected occurrences. Plan to cut down to the very very bare minimum you can survive on. Remember, this is only going to be for a while and things would improve.
- Set Aside An Amount You Can Afford To Pay Every Month, no matter how small it is and stick to that amount. Even if it is cutting off an extra $50 aside and let that be what you would be paying off. It may sound ridiculous but creditors have been known to accept payments as low as $5.00 per month as payment for debts as big as $10,000.
- Talk To Your Creditors. Explain to your creditors that you are trying to avoid bankruptcy and are working hard at paying down your debts but that it may take you longer to do so. Ask them to lower your interest rates or help you to avoid late fees and over the limit fees. Many are more than willing to do this so you don’t file bankruptcy. Let them know what you can afford. Expect an initial resistance and request for more. Stick to your gun or reach a mid-point you can afford and be determined to stick to whatever you both agree.
2. Stop Using Credit
"It is common for a person today to have, on average, over $9,000 in credit card debt on four or more credit cards," states Michael Wagner in his 2009 book Your Money, Day One: How to Start Right and End Rich.
Unsecured debt is the number one reason that individuals file bankruptcy.
Individuals often have unsecured debt for a number of reasons but it is costly and it can continue to cut into your financial future. Begin today with only using cash to pay for your bills. It will immediately make a difference in the way you see money. So cut all your credit cards, store cards and return them.
Remember, this is exactly what would happen and be forced upon you if you were to declare bankruptcy. You can do this yourself and learn to stay away from credits until your "economy improves". It would be really hard and difficult initially, but you would come off better at the end.
3. Consider Your Equity
For many, a debt consolidation loan that taps into the equity that they have in their home is the ultimate choice for avoiding bankruptcy.
You can do this by simply using the funds in your home to pay off your debts and then having this secondary loan to pay off each month. Although a personal loan is an option too, personal loan options are often limited to those with good credit.
4. Contact A Not For Profit Government Backed Credit Counseling Agency
Once you have taken steps yourself to implement the above steps, look online for a credit counseling organization or agency near you.
This must be government backed. Avoid the numerous debt counseling organizations out there who often promise to help you for "a small fee". Many have ended up paying them fees that could have gone into paying part of your actual debt without getting value for their money.
They may have access to government backed support and advice to help you manage your finances or approach your creditors more formally and avoid bankruptcy.
The following are well known credit counseling agencies you can start with, depending on where you live:
- In the USA, you can contact ConsumerCredit.Com on +1 800-769-3571. They have offices across the 50 states of America and should be able to help you with debt planing for free if you cannot afford to pay anything.
- In Canada, there are many such agencies across different provinces and include the Credit Counseling Services of Alberta on 225 to 602, 11th Avenue SW Calgary, Alberta. Tel: 403-265-2201; Credit Counseling Society of British Columbia, on 200 - 435 Columbia Street, Westminster, British Columbia. Tel: 604-527-8999; Credit Counseling Services of Ontario, on 27 Carlton Street, Suite 301, Toronto, Ontario. Tel: 416-593-9224.
- In the United Kingdom: With lots of free, confidential help and advice services available across the UK, there’s no need to use a fee-charging debt management company. You can contact the National Debtline over the Telephone on 0808 808 4000 or reach them online on their website, www.nationaldebtline.org
5. If Your Circumstances Allow, Get Another Job. See How Below
Yes. Get a second job if your health allows.
If you are in a lot of debt, and really want to avoid bankruptcy at all cost, the only thing that should stop you from being able to take on a second job should be your health.
What about doing an extra four hours after work at your local pub or gas station in the evening or early morning cleaning? Could you work for an extra Saturday or Sunday somewhere? If you are only bringing in an extra $100 per month after tax on your second job, in a year, that would amount to $1000 paid off your debt and in five years that would be $5000 paid off, plus anything else you could afford from your other job and budget.
No job where you live? What about spending an hour or two extra every evening working for yourself online? Seriously. If you can get a good internet connection, have a computer, and can type, copy and paste, then you have the skill needed to start your very own business online. All you need is the motivation and determination to succeed. Many many folks are already doing so and you can as well. See real life examples here of people who are now debt free by tapping into the power of SBI to free themselves of financial pressure. We highly recommend SBI as a powerful tool to help you lunch your business.
Learning how to avoid bankruptcy is challenging and it will take time. But, the benefits are many and well worth it.
While you will have to put yourself through a lot of stressful restrictions to help you get back on tract, you would have the peace of mind and dignity of being able to pay off what you owe without a forced restriction on you by the courts.
You would also be able to get back to using credits if you so desire in time - not after 10 years as with bankruptcy. It would be an experience that may put you in a better stead as per how you control your assets. It is really worth the effort.
If you want to learn directly from someone who has successfully fought the system and avoided bankruptcy through the courts, here is a link to his paid membership site where he coaches members on how to avoid bankruptcy by engaging unforgiving creditors.