How to Avoid Having to File For Bankruptcy

Filing for bankruptcy wipes out debt, but it also ruins your credit for years. There are many alternatives to bankruptcy, including a debt consolidation program and renegotiating with your creditors. 

Bankruptcy eliminates or reduces debt for people who are unable to pay their bills. It can also prevent foreclosures, repossessions and wage garnishments. Be sure to seek a professional such as a bankruptcy lawyer in Harrisburg PA for bankruptcy proceedings. 

Create a Budget 

A budget is a tool that can help you navigate your financial journey. It outlines how much money you earn each month and what expenses are expected to be. It also includes allocations for savings. 

The process of creating a budget can be eye-opening, humbling and empowering all at once. You’ll need to document all your income and expenses, including those that are fixed (such as rent or mortgage, utilities and car payments) and those that vary 

from month to month (such as groceries and entertainment). It’s also important to separate needs from wants. For example, gasoline is a need while music subscriptions are a want. 

Once you’ve created a budget, it’s important to review it on a regular basis. This will help you stay on track with your goals and make adjustments if necessary. In addition, it’s helpful to remember why you’re following your budget. It could be the pleasure of purchasing new wheels or a fabulous vacation property, or the comfort of having an emergency savings fund. 

Reduce Your Expenses 

The best way to avoid bankruptcy is to reduce your expenses and stick to a budget. Recording your spending and using online budgeting tools can help. Ideally, your income should exceed your expenses. If it doesn’t, you need to find ways to cut your expenses and save money that can be applied toward paying off your debts. 

For example, you may need to downsize if you spend too much on housing – lenders like to see borrowers spend no more than 28% of their pretax income on housing. You can also try cutting other bills such as utilities, food and entertainment. 

Another good option is to consolidate your debt. This can help you lower your interest payments and make a single monthly payment rather than juggling several different bills. Be sure to consult a credit counselor or financial advisor before making this decision. Moreover, before filing for bankruptcy, you should avoid going on expensive vacations or shopping sprees. 

Sell Your Assets 

Many people file for bankruptcy because their debts far exceed the amount of income they bring in. This situation often occurs when a person spends more than

they can afford, experience a financial setback or loses a job. 

One way to avoid having to file for bankruptcy is to sell your assets. This can be done by holding a garage sale or placing items on the internet for sale. Be sure to save copies of any ads or listings you place, plus keep track of who bought each piece of property and how much you received for it. 

In a Chapter 7 bankruptcy, also called liquidation, a trustee will sell most of your personal property to pay creditors. You can keep certain assets, known as exempt property, such as a portion of the equity in your home and car, clothing, personal items, tools needed for work and non-retirement investments. You can also consider a debt management program with a nonprofit credit counseling agency. These programs typically involve a monthly payment to the agency that it then uses to pay your creditors. 

Negotiate With Your Creditors 

Negotiating with creditors may be a way to reduce your debt and avoid bankruptcy. Creditors are more willing to negotiate if they can see you’re in financial hardship and that servicing the debt is beyond your ability. 

Be sure to research your creditors before you contact them. Look for information about how they treat borrowers and how they settle debts. You should also be prepared to go back and forth with the representative you speak with to find a solution that works for both of you. 

If you can’t come to an agreement with your creditor, consider seeking the assistance of a nonprofit credit counseling agency. These organizations typically have staff members who are trained to help you decide between debt consolidation and bankruptcy and they’ll develop a debt management program with payments you can afford to make. It may take 3-5 years to eliminate your debt through this method, but you’ll avoid the risk of bankruptcy and you’ll be on your way to being judgment proof.