Week 11: 6 Tips on How To Avoid Bankruptcy

You are reading Week 11 of 52 Weeks to Eliminate Debt & Curb Spending.  Please read the overview here to learn more about the series & get your FREE financial planner.  If you just joined us, please start with week 1.

As I talked about last week, there are some instances when it can seem you have no other choice but bankruptcy. This week I am going to share some tips with you on how to avoid bankruptcy. We will look at these suggestions in depth at various points this year, but this week we will focus on the basics.   You want begin considering these options now to get your finances back on track and get out of debt this year.

How To Avoid Bankruptcy

Get honest with your creditors. When you are behind on payments (in default), it’s time to get honest with your creditors. Start calling and talking to them. Tell them you want to avoid bankruptcy.   While a mortgage, car payment and select credit cards might be unwaivering without an attorney of other 3rd party being involved, there are many creditors who are willing to suspend your account and negotiate lower payments for you.

Instead of letting the fees continue to pile up, focus on how you can negotiate a functional payment with them. Ask for an extension, lower payments, lower interest rates, suspend accounts or any negotiation they are willing to offer to keep your account from going to collections or court for repayment.

If you’re account is current, they are less likely to help you by reducing payments or interest rates.  Now, I’m not saying stop paying on accounts, so you can negotiate a deal.  I’m suggesting you focus your efforts on accounts that are already in default & keep paying the minimum payment on accounts that are current.

No amount is too small to offer. Your meager twenty five dollars a month may not seem like an option to offer, but when it comes to creditors no amount is too small to offer. While they will ask for more, and likely you will be charged interest for being late, there is truly no amount too small to offer. Most creditors would rather have you paying something than nothing at all. Taking you to court or sending you to collections costs them money they don’t want to spend. Offer even a small monthly payment.

Seriously change your spending habits. Yes, sometimes you just don’t have the income to make even the basics happen. That is understandable. Yet, some people are struggling because they still haven’t given up their wants to pay for their needs. Take time to really get honest and evaluate your income and expenses to remove things you don’t need. Some things can be a temporary change while others could be a permanent change. The important thing is to get honest about your situation and step up to make the big changes required to avoid bankruptcy.

Sell your possessions.  I know, I know.  We’ve been here before.  If you’ve previously resisted the idea of selling your stuff, now is a good time to reconsider.  Maybe you have an addiction to the jewelry store down the street.  Maybe you got a bit too excited about all those new TV’s and gadgets at Best Buy. Maybe you couldn’t help but purchase a just few more items every time the new Pottery Barn catalog was delivered to your door.

Stop and think about it.  Do you really need a flat screen in every room of your house if you might not even have a house to put them in soon?  Should you really be walking around with flawless diamond earrings and a Tennis bracelet if you might lose your car?  You don’t necessarily have to have super expensive items to sell, any amount of money you can make will help.  I’m just trying to put a little perspective into the situation.

Consider Debt Settlement.  Talk with a reputable financial adviser or credit counselor about the possibility of debt settlement.  Don’t just pick a number of a debt settlement company out of the phone book. They are there to help themselves, not you.  Get a trusted 3rd party involved to help look out for your best interest.  There will be fees, but you won’t take as big of a hit on your credit as with bankruptcy.

Ask for help.  Borrowing money from friends and family is usually not a good idea.  BUT if it’s that or bankruptcy, it could be a good option.  Determine how much money you need borrow to avoid bankruptcy.  Then work out an official repayment plan to start paying back the money you borrowed immediately.  This loan should be added to your monthly budget.  Do not use this as a “get out of jail free card” and continue raking up more debt.

It isn’t easy to avoid bankruptcy once you reach the point of collections, foreclosure and repossession, but it can happen. To avoid bankruptcy you really have to get honest, swallow your pride, ask for help and work hard. Focus on getting rid of debt by first being honest with yourself about what created it and how you can fix it.

Week 11 Challenge:

If you haven’t updated your debt spreadsheet since week 1, you need to do that now. How does your current debt compare to t10 weeks ago?  Have you made any progress or have your debts increased?  Note what accounts are in default and how much money you would need to avoid bankruptcy.  Look over the tips above.  Is there anything you haven’t tried?  Instead of using one of these tips, combine them.  Put all these tips plus anything else you can think of in your arsenal to avoid debt.

Start calling creditors (call one company per day or set aside a day and get it all over with at once), schedule a meeting with an adviser, get items listed on Craigslist and/or call your parents for help.  Do something TODAY, anything to help start the process and avoid bankruptcy.

Disclosure:  I am not a financial adviser nor do I have formal financial training.  All articles are for informational purposes only and should not be interpreted as financial advice or consultation.  Please consult your account and/or financial adviser before making changes to your finances.  All situations are different, so please consult a professional to determine your individual needs.