Bankruptcy is an unfortunate situation which scares everyone. This is a state that nobody wishes to find himself in. Financial analysts have described bankruptcy as a negative life changing experience besides disability, death, divorce or severe illness. Apart from ruining ones reputation it leads to emotional distress.
A person declared bankrupt is not necessarily negligent with his or her finances or searching for an easy way out. There are a variety of reasons why businesses and individuals file for insolvency.
If you are going through financial crisis and you are unable to pay off your debts, it seems like you are trapped. However, there are several preventive measures to be taken to prevent personal bankruptcy. You may find yourself out of this mess totally by considering some of these approaches.
Negotiate or repay your debts
Insolvency is liquidation meaning that you have to clear or settle of all your debts. However, your valuable property and assets can also be relinquished to settle your debts. If you are thinking of filing, you can still keep your assets and repay your creditors instead.
An agreement to repay your creditors without relinquishing any of your property is known as debt consolidation. This means that you could consolidate the amount outstanding to a single loan by making monthly payments at a reduced interest rate. On the other hand, debt settlement is similar to debt consolidation only that with debt settlement you have to strike a deal with your lenders. Most lenders will help you come up with a lower payment plan if chances of getting their cash back are high.
Credit card balance can be reduced through two ways either through avalanche method, in which huge payments are made in order to reduce your payments as you continue or the snowball technique where you pay in small bits.
Lend money from friends or relatives
Friends and relatives can be a great source of financial help if you just swallow your pride. Although many social relationships have been broken as a result of financial issues, it is advisable to take this step when you are on the verge of bankruptcy.
Before borrowing money, you have to ascertain the amount of money to be raised. Subtract what you can comfortably afford then you will have a clearer picture of the amount to loan.
Sell off property
Total bankruptcy means that all your possessions are put under a trustee who makes a decision on what to liquidate to settle your claims. You can avoid such a situation by disposing some of your assets before you are declared bankrupt.
If you are indebted, consider some of your valuables that are disposable. It is prudent to find an appraiser to help determine your property value. Although by disposing some of your property you may raise limited amount of money, it is better off than surrendering your property through an insolvency filing.
Cut back your expenditure
An ideal way of saving money is making real sacrifices. You can avoid personal bankruptcy by doing away with unnecessary expenses. You can cancel your gym membership, suspend trips and vacations, do without going to the theaters and other leisure activities.
You can only learn how to save and minimize debts when you distinguish needs from wants. Additionally, you should spend less than you are earning to be able to build up your savings. If you are unable to manage your finance you can consult a credit counselor to help you work out your financial issues. However, financial control needs discipline in terms of spending.
Your debts will be manageable by restructuring your mortgage if you have taken up a home loan. A good mortgage repayment plan will enable you save some cash and pay off other creditors. Remember this is worthwhile if you are able to avoid foreclosure.
You can amend your mortgage plan using two methods. The first method is to strike a deal with your lender to reorganize the mortgage under a more friendly payment plan. The second option is refinancing your mortgage completely which may mean signing up for a reduced interest rate over an extended duration.