Are you considering declaring bankruptcy? In certain circumstances, bankruptcy can be a useful tool to wipe your slate clean. But it also comes with serious consequences. Before you declare bankruptcy, consider that there may be a better way forward. Read on to learn how you can avoid bankruptcy
Why not declare bankruptcy?
If you’re thinking of declaring bankruptcy, you may feel like you have nothing left to lose. Unfortunately, it’s not the case. Even if you are buried by debt, bankruptcy can still hurt you. Here’s what you still stand to lose:
Privacy. When you file bankruptcy, the bankruptcy becomes a matter of public court record. Unless a document is sealed, all cases become available for public viewing.
Your positive credit history. This is a big one. After you file for bankruptcy, your credit score will take a serious hit. And the negative mark on your credit report will linger for 7-10 years after you declare bankruptcy. Having bad credit can prevent you from getting good rates on loans, getting approved for apartments, and even getting hired.
Your assets. Even when you file for bankruptcy, some debts may not be discharged. When this happens, the court can order liens and levies on your possessions. That means you’d tank your credit score and still have to lose your possessions.
Your income. After you declare bankruptcy, you may still have to repay some of your debts. Repayment may be taken from your paycheck for up to five years after the bankruptcy.
As you can see, bankruptcy should only ever be your last resort. But what else can you do? If you’re burdened by debt and unable to pay it off, what steps can you take?
How to avoid bankruptcy
Before declaring bankruptcy, consider the following tactics:
Negotiate with your creditors
Your creditors would rather get some money than none. If you let them know that you’re struggling financially, they may be willing to work out an agreement. With luck, they’ll lower your monthly payment, lower your interest, or both.
Work with a credit counselor
Have you tried negotiating with your creditors, but they won’t budge? A well-trained credit counselor may be the ally you need. They can work with you and your creditors to put together an affordable debt management plan. Within a few years, your debts will be a thing of the past!
Consolidate your debt
Are you juggling payments for several different loans, and struggling to stay on top of them? Debt consolidation can help. What does it mean to consolidate your debt? Basically, you’re taking out one loan large enough to pay off all your other debts. Then, you’ll use that loan to pay off all your outstanding debt. That way, instead of juggling several different payments every month, you’ll only have to make one!
This is an especially good option if you’ve improved your credit score, raised your income, or otherwise become more creditworthy since you first took out your loans. It’s also helpful if you’re dealing with high-interest credit card debt.
But be cautious. Be sure to find out if your outstanding loans charge prepayment fees, and find out how much they cost. If the fees will counteract the savings from your debt consolidation, this strategy may not be worth it.
Sell some assets
Need to pay off debt fast? It might not be fun, but selling valuable possessions is a great way to make cash fast. If you have a car, try taking public transit to work for a while to see if you can live without it. If you can, sell it!
Even without a car, everyone has some furniture or clothes that they could do without. Go to a pawn shop to get your possessions appraised. If their value is enough to pay off one or more of your debts in one fell swoop, you should go for it!
Get a side-job
If you’re unable to afford your monthly payments, an injection of extra income may be just the thing you need. Fortunately, in today’s economy, there are a ton of side-hustles that let you work a few extra hours between shifts and on your own schedule. Whether you decide to drive for Uber on Friday nights or rent out a room with AirBnB, a side job can make your monthly payments more affordable.
Settle your debt
If you’ve tried everything else, turn to debt settlement before you resort to bankruptcy. By agreeing to pay your lenders less than what you owe, you’ll reduce your debt load and make your monthly payments more affordable.
Settling your debts can also hurt your credit score, but it won’t do as much damage as bankruptcy.
Not confident in your negotiation skills? Enlist an experienced debt settlement firm to be your advocate.
Not sure where to start? Reaching out to your creditors is a great first step. The more you proactively work with them to pay off your debt, the likelier you both are to come to an agreement.