Record numbers of people are filing for bankruptcy each year. If it has even been in the back of your mind, you should take the steps to avoid bankruptcy. Why avoid bankruptcy? When you claim bankruptcy, it will remain on your credit report for ten years. So when you are able to obtain credit, it will often be at a higher interest rate, as banks will consider you to be a greater risk to lend to. You also may not be able to get the entire amount you asked for on credit due to your credit history. Not only is a credit report for obtaining credit, employers are more and more likely to check your credit score before hiring you. A good clean credit report reflects favorably on your reliability as an employee. Particularly if you will be dealing with finances or customer accounts. Not to mention that there are some debts that bankruptcy will not discharge, such as tax liens, student loans or child support payments. Even if your other debts are relieved, you will still be responsible for the non-discharged ones. Too many people think bankruptcy will remove all pre-existing debt; it does not. There is also an emotional cost to bankruptcy. Feelings of depression, inadequacy and failure often go hand in hand with bankruptcy. Even though there really are cases where bankruptcy is the best option, try to exhaust all other possible solutions first. Ask yourself why you are in financial trouble. Is it because of illness, job loss or bad spending habits? Sit down and create a budget of all income and expenses to get a better idea of where you can save money to put towards your debts. Creating and sticking to a budget is one of the most successful ways to avoid bankruptcy. If you are becoming more and more behind on your payments, contact the lender. It does not matter whether the lender is for your mortgage, credit cards or any other revolving debt. The creditor would rather speak with you and try to work something out rather than have to take you to collections. Many credit card companies offer a debt solution program for you if you are having trouble making your payments. They may be willing to lower your interest rate (if your credit score is still good), so your monthly payments will be lower. Or they may lower your monthly payments at your current interest rate. Keep in mind that option will result in you paying more money overall over time. Your home is one of your most important assets. Before you become delinquent in payments and face foreclosure, talk to your mortgage lender. They will be willing to work with you and may have a hardship program that you can enter without it damaging your credit. Contact a debt counseling service. Choose a not for profit (NFP) organization, you don't want to pay exorbitant fees for a company that will ruin your credit to try to get your debts discharged. NFP companies will work with your creditors to consolidate your monthly payments into something more manageable for you. This is only for unsecured liabilities like credit cards. You do still need to have some kind of income to qualify for this, as you do need to make scheduled payments. Debt consolidation loans: If you have equity in your home, you could take out a line of credit to pay off your debts. Be extremely careful if you pursue this option, as many people will again rack up credit card debt. That would lead to you owing new debt and the home equity loan concurrently. While bankruptcy is sometimes the best option for a person, view all other avenues first before making this decision and know exactly what will result if you do declare bankruptcy. |
