3 Smart Ways to Avoid Bankruptcy
According to Dave Ramsey, one of the most popular financial-advice gurus, bankruptcy is one of the top five life-altering negative events a person can experience along with divorce, severe illness, disability, and the death of a loved one.
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While it may be the sensible thing if you've hit the perfect storm of setbacks, avoiding bankruptcy and paying off all debts is the best decision for most people. This guide could help you answer the prominent questions every indebted person asks…
“Is bankruptcy a better option?”
“What are the consequences of filing bankruptcy?”
“What are the best alternatives to bankruptcy?”
Credit missteps are recorded in your credit reports for a period of seven years. Bankruptcy is such a significant hit to your credit, that you probably won’t be able to borrow money, get an unsecured credit card, or any of the other common ways to use other people’s money until that 7 year period is passed. This happens for a reason. Credit reporting agencies determine that if you go bankrupt, you aren’t someone who can handle more credit, and they’re usually right!
What is bankruptcy exactly?
Bankruptcy is the procedure, within the confines of the law, that allows the debtor or debtors (if it includes a body or company) to appeal to a court for partial or total relief from their debt, due to certain circumstances beyond the debtor’s control.
By nature, bankruptcy is often filed by the debtor and imposed by the court of law, if the case goes in favor of the debtor. Bankruptcy and insolvency are two different terms, even though many use them interchangeably. Insolvency is the state of being unable to make payments towards your debt, while bankruptcy is an action taken to relieve you of your debt. An insolvent debtor is not necessarily bankrupt, but a debtor who files bankruptcy is said to be insolvent.
How to Avoid Bankruptcy
When we are talking about any problem there are usually two paths to take, preventative measures and clean up measures. So whether you are on the edge of going into bankruptcy or just concerned about it being a possibility in the future, below are some smart ideas to explore.
1. Eliminate your debt by picking up a side hustle
If you are not paying your bills on time then you have two options, cut expenses or make more money. Since you made it this far, you know that your monthly budget is the best way to identify where to cut spending, but if that doesn’t get you to breaking even on your bills, then pick up a side job.
While pizza delivery seems to be the go to job for making some extra buck, there are other ways to make money fast that may offer more flexibility. Becoming a driver for Uber or even doing some online work can really help your cash flow and keep you from bankruptcy.
2. Check your credit report every 4 months and keep track of your credit score
You can check your credit report for free from each of the three credit bureaus using annualcreditreport.com. You do not have to get all three reports at the same time, so get one every four months to make sure that the report is clean and you are not getting hit by either identity theft or debts you forgot about.
By having some sort of credit monitoring service you can make sure to catch when something weird is going on with your credit report. Since most of these services give you monthly or weekly updates, you can quickly know when something is going wrong with your credit.
Also, more services are checking your credit score to determine your rates. This can be insurance or any situation where you have to make monthly payments.
3. Settle Your Debts for Less with a Debt Settlement Program
In a debt settlement program, negotiations are made with each of your creditors to accept much less (often 50% or less) of the balance. You will be making a monthly contribution to a FDIC Reserve Bank Account where your funds accumulate for settlement offers.
Depending on several factors, you may able to not only get out of debt in 24-48 months or less, but you can also avoid bankruptcy.
Although you can negotiate with creditors on your own, it is not easy. Gold West Financial can help find the right program for you and has been helping clients do that for over 10 years.
If you go into bankruptcy, your creditors will immediately stop getting paid and they then must justify to a court why they should be a priority in getting paid.
Bankruptcy is used too much by the public at large, instead of learning sound financial principles. If you are considering bankruptcy, take as many of the steps above as possible so you can save your credit and learn how to manage your money and spending so you never end up in this situation again.
For more helpful articles on saving and repairing credit, check out our other blogs. Gold West Financial is your source for debt resolution solutions -- bad credit OK. Ask us how we can help by giving us a call at (855) 200-0586 or apply online today!