How and Why to Avoid Bankruptcy

Bankruptcy was put into place by the US government for a reason. While many people are afraid of the implications that come with filing for bankruptcy, the fact remains that it has helped countless people over the years to be able to settle their debts and move on with their lives. However, bankruptcy is not the right choice for everyone, and there are many reasons to avoid it if at all possible. If you do file for bankruptcy, you credit will take a huge hit - on average it will be lowered by 200-250 points and will remain that way for up to 7-10 years. It is also possible that you could lose your home, car, or other assets, and because of your lowered credit score it will be impossible for you to buy, possibly even rent, a new home and car. Additionally, depending on your state's laws, your retirement plans may also be put at risk.

One way to avoid filing for bankruptcy is to ask your creditors for help. Creditors can be extremely difficult to work with, but they will always want to get some money from you rather than none at all. Most banks and credit card companies have programs in place intended to help those who find themselves on hard times. If you contact your creditors and let them know that you sincerely want to pay back your debt but are in a tough financial situation and trying to avoid bankruptcy, they may be able to help you by lowering your monthly payment or decreasing your interest rate, possibly even both.

Another way to avoid bankruptcy is to come up with a budget for yourself and a payment plan for your debts. Many people don't know that if they do file for bankruptcy and fail the means test, they will still be required to pay back their debts. (A good way to know if you will fail the means test is to consider whether you are currently making more money than the average person in your state, although this is not always a good indicator). If you can sell some of your assets to repay some of your debts, and come up with a plan to pay the rest, you will be doing the same thing the courts would have forced you to do, and you will have saved your credit score. You may have to stop eating out, cancel your cable, even turn off your cell phone, but when your debts are paid off it will most certainly be worth it.

Finally, if you have exhausted all other efforts, you may want to consider debt settlement. Debt settlement is something that should usually be avoided, but is a much better alternative to bankruptcy. A debt settlement program is where you negotiate with your creditors to lower your debt, and you may choose to do it on your own or with the help of a professional settlement service. A professional may be able to help you a better settlement, but they will also take up a lot of extra time and money so weigh your options before you call one.