How Do I Avoid Bankruptcy?
You’re not the only one at the edge of Bankruptcy, so stay calm. There are a thousand others seeking a way out of debt, even if it means filing for Bankruptcy. I don’t know where you are or what you’re facing, but 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”
There are various ways to get rid of loan debt, though people only see two, which are; paying your debts or filing for bankruptcy. In this article, we’re going to discuss the consequences, different ways of avoiding Bankruptcy, and the potential alternatives. We cannot avoid a thing we don’t know, so let’s get to the root of Bankruptcy.
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What is 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 this 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.
Types of Bankruptcy
Under the bankruptcy code, we have two types of debt, namely Chapter 7 and chapter 13.
Chapter 7 Bankruptcy
Chapter 7 aka the traditional bankruptcy primarily involves the discharge of debts. Under the bankruptcy code, debtors who filed for the chapter 7 bankruptcy are required to let go of their property or pay for it.
Depending on the court order, the nonexempt assets are seized, while the exempt property is left untouched. Once the court order is fully carried out, you’re free from that the remaining dischargeable debt for life.
To file for chapter 7, your income must be insufficient to continue with the debt payment. Debtors with sufficient income are advised to file for chapter 13.
Chapter 13 Bankruptcy
Considering that the individuals who’re allowed to file for Chapter 13 must have sufficient incomes, it’s insane to think any court would rule for total debt cancellation. The court order can go in two different directions; payments are restructured in a way that makes them more manageable and easier or a fair portion of the debt is canceled, to relieve you of the heavy burden.
Whether your payment calendar is extended or you’re allowed to pay part of the debt, your weekly or monthly payments would certainly reduce and your finances would be placed under close supervision.
Though the aim of the court is to pass a fair judgment your creditors don’t have to consent to the court order. But they must obey all obligations ruled by the judge.
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How to Avoid Bankruptcy
The route that led you to debt won’t lead you out. Therefore, you’d have to set new goals and follow a totally new procedure. Below are the eight steps you need to follow to avoid bankruptcy.
Know the Consequences
People adhere to principles because or the love of the fear of certain events, things or people. Being conscious of the consequences might act as a negative motivation against it. Though this method doesn’t work for all, it’s worth trying out.
Below Are the Consequences of Bankruptcy;
- Loss of Property: More often than not, most bankruptcy cases end in the loss of assets. As earlier mentioned, chapter 7 and chapter 13 might mandate you to list your properties for sale, to repay your lender. This could deprive you of your favorite house, cars, jewelry, furniture and other forms of belongings. It is best to have a repayment plan to avoid this.
- Bad Credit Report: Filing for bankruptcy automatically has a negative effect on your credit report. The presence of bankruptcy in your credit report sends a bad signal to your future lenders, which may compel them to decline your application or charge high-interest rates.
- Difficult getting a Mortgage After Bankruptcy: As we stated for credit cards, the same goes for a mortgage. Your chances of getting a good home loan to diminish when you file for bankruptcy. Your mortgage application would suffer some decline from lenders and the best you can get is a house loan with high-interest rates/unfavorable conditions. The best way to go about this, if you’re bent on filing for bankruptcy, is to verify your present mortgage while the bankruptcy proceedings are ongoing. Sticking to your current mortgage would secure your home, assist you with your home loan and protect you from the aftermath effect of bankruptcy.
- Others Could Be Affected: Don’t think you’re the only one at risk when you file for bankruptcy. For instance, assuming your partner cosigned a loan for you, he/she could bear the burden of that loan debt, when you file for bankruptcy.
Adjust Your Spending Habits
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Ensure you’re not spending on unnecessary things and search for the alternatives of expensive things you can’t do without.
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Sell the Stuff You Don’t Need
Trade the stuff you can spare for money and make payments for your debt. Replaceable stuff like furniture, jewelry, and electronics could be easily sold at good prices on craigslist, eBay or in your neighborhood.
Though this step might seem radical, it’s necessary. And you gotta act fast. Act once you realize you can no longer meet up with debt payment deadlines. Waiting till you’re behind payments could be costly and risky. The earlier, the better.
Understand this: selling your stuff to make the payment has a temporary effect on you, but bankruptcy could affect you for a decade or two. So choose what’s best for you ’cause the choice is yours.
Ask Your Loved Ones for Help
As simple as this step is, it may be hard for some people and I understand. But you have to exhaust all possible means before embarking on the bankruptcy case.
Explain to your loved ones the consequences of bankruptcy, which seems to be your only option, and they’d understand your plights. And maybe, they could help.
Before you seek help from friends and families, take your time to calculate how much you’re gonna need to settle your debts and draft a payback plan.
Ask for Loan Forgiveness
There are several loan forgiveness programs that would help you pay your loans, in exchange for public service.
You’re gonna be required to work in government-approved high professional shortage areas (HPSAs). These programs require you to be a public worker, who’s worked with the federal parastatals or accredited Non-government organizations. In addition, you must have paid your loan to a specified before you could be considered at all.
Check out my detailed guide on loan forgiveness.
Negotiate With Your Creditors
No one likes a court case. Most creditors love to settle issues outside court.
Speak to your creditors, as regards your current financial difficulty and explain how you’re trying to avoid bankruptcy, which isn’t in their best interest also.
Tell them you’re willing to pay your loan debt if they could help you by reducing the monthly payment and interest.
The good news is most banks or creditors have hardship programs for those with financial issues.
Just ensure you emphasize on reduction on both monthly payments and interest rates before you enter a hardship program. Otherwise, you could encounter a larger problem with a higher minimum payment.
Go for Counseling
Sometimes, the debtor-creditor convo doesn’t end in mutual understanding. If you’re having difficulties negotiating with your creditors, enlist the assistance of a professional.
Get yourself a consumer credit counselor with experience and a proven track record to help you negotiate for a reduction in payment and interest rate.
In fact, the new bankruptcy rule mandates credit counseling before filing for bankruptcy, so credit counseling is an important way of avoiding bankruptcy.
The main job of a consumer credit counselor is to foster an agreement or debt management plan between the creditor and debtor. More often than not, getting a consumer credit counselor helps the situation.
3How to Avoid Bankruptcy: People Also Ask
How Long Would Bankruptcy Information Stay on My Credit Report
This depends on the type of bankruptcy you filed. The maximum duration information would appear on your credit report ranges from 7-10 years.
A completed chapter 13 bankruptcy would appear on your records for 7 years whereas a chapter 7 bankruptcy would appear for nothing less than 10 years. For late payments, and public records, the maximum is 7 years.
Would the Bankruptcy Information Disappear After Discharge?
No, the would still be a remnant of “this account has been discharged from bankruptcy” on your credit report. So it never really goes away: future lenders would still be able to detect the bankruptcy info if they search deeper into a debtor’s records.
Discharged accounts would have their status updated to that effect, but the negative effect of bankruptcy we mentioned earlier would remain.
Can Loan Forgiveness Help Me Avoid Bankruptcy?
Loan forgiveness is one of the most effective ways to get rid of your loan debts without going bankrupt. Depending on your job, rank, and state, there are many loan forgiveness programs you could enter, such as Perkins student loan forgiveness programs, teachers loan forgiveness programs, and many more.
We’ve written a guide about the benefits, list, and requirements of loan forgiveness programs in the united states. Check it out.
Don’t overstress yourself, Bankruptcy isn’t death: there are different ways of avoiding bankruptcy and we hope this guide has been of great help.
Thanks For Reading.