How To Avoid Bankruptcy (What Anyone In Debt Must Know)

There are strategies to effectively pay off debt, position yourself and your assets in a way that protects you from creditors, and avoid the financial ruin of bankruptcy.

Some people may see bankruptcy as a no-consequence solution to their financial woes. However, this couldn’t be further from the truth. 

Filing for bankruptcy can have long-lasting and damaging effects on an individual’s credit score, making it difficult to secure loans or even rent an apartment in the future. Not to mention the emotional toll it takes on a person and their family. 

By evaluating the following tips and putting them into practice, you may be able to avoid bankruptcy altogether.

KEY TAKEAWAYS:

• Falling into bankruptcy due to overwhelming debt can be a difficult and stressful situation.
• Optimizing your balance sheet can help improve your financial standing and lessen the risk of bankruptcy.
• There are options available to help manage debt, such as reaching out to creditors for assistance or considering debt consolidation.
• Seeking professional help from credit counselors can also provide guidance and support in managing your debt.

Understanding Why Bankruptcy Is Not a Good Idea

Bankruptcy is a legal process that allows individuals or businesses to seek relief from their debts. While bankruptcy may provide debt relief, it is not always the best option, and in some cases, can make the financial situation worse.

Banks and other creditors are not in the business of providing charity, so you can expect they will do everything within their power to recover as much money owed as possible. This can be done by seizing assets, garnishing wages, and damaging credit scores.

It may seem like an easy way out of debt, but bankruptcy can have long-term consequences that may affect you for years to come. It is essential to consider other options before filing for bankruptcy. 

By knowing how to avoid bankruptcy you will have more flexibility and options to pay off debt and improve your financial situation.

Create a Budget and Stick to It

You may be surprised to know that even some high-income earners file for bankruptcy due to a lack of budgeting skills. It is essential to understand how much money you have coming in and where it is going. This happens when purchases exceed income.

If someone were to earn $1,000,000 per year but they were to buy a mansion, two expensive cars and go on luxurious vacations regularly, they would soon find that their income is not sufficient to cover the cost of living. 

This is because the mortgage and cost of maintenance of the mansion, monthly payments for both cars and expenses for luxury vacations exceed their income. 

If they were to simply live off their income and save or invest the rest, they would be on the road to financial independence.

This path to bankruptcy can be found at all levels of income. If you earn $50,000 per year and only live off of $40,000 and pay your bills, you are on the road to financial stability. 

However, as soon as your purchases exceed that $50,000 and you begin to dip into debt with a high-interest rate, you are on the road to bankruptcy.

Increase Income and Create Passive Cash Flow

On the other side of your personal balance sheet is income. By increasing your income and creating passive cash flow, you can reduce the risk of bankruptcy. 

This allows for more wiggle room in your budget or even helps to eliminate debt altogether. Various side hustles, freelance work or investments may help bring in additional income.

These assets can help you to build wealth and take ownership of your financial future. 

If your income is unstable but you have assets that produce passive cash flow, you have a much better chance of avoiding bankruptcy as these sources of income can help reduce interest from piling up into your principal if you have a slow month of work.

When you have extra money and have already paid down some of your principal, you may want to look into investing in either yourself (to become a higher-income earner) or in assets that will create passive cash flow. 

If you are sick or need a break, these assets can work for you and are resilient against a downturn in the economy.

Negotiate With Creditors

If you do find yourself with a large amount of debt, it is important to remain proactive in managing it. One option is to negotiate with your creditors for more favorable payment terms. 

This could include lower interest rates or longer repayment periods. At the end of the day, these companies would appreciate some form of repayment rather than having to write off your debt completely.

In addition, many credit card companies offer hardship programs for those struggling with debt. 

These programs may include lower interest rates or waived late fees and penalties. It is worth reaching out to your creditor and explaining your situation to see if you qualify for any assistance. This could provide some relief and help you avoid falling into bankruptcy.

Consider Debt Consolidation

Another option for managing debt is through debt consolidation. This involves combining all of your debts into one loan with a lower interest rate and a longer repayment period. 

This can make it easier to manage your payments and potentially save you money on interest charges. The way this works is that the debt consolidation company will pay off your creditors in full and then you will make one monthly payment to the consolidation company.

With a lower APR than the original debts, you will be paying less in interest over time. This will not only help you make the minimum monthly payments but can create a better opportunity to pay off the principal balance. 

For those who fear bankruptcy, this strategy can be an effective way to keep that fear at bay.

Seek Professional Help

If you feel overwhelmed by your debt and unsure of how to manage it, seeking professional help can be a smart option. 

At Americor, we understand the importance of managing your finances wisely. 

As America’s trusted source for debt relief solutions, we aim to empower you with financial knowledge that can lead to informed decisions, whether it’s about savings, investments, or managing debt.

If your debt has become unmanageable and you have difficulty making your debt payments each month, then you should consider a free consultation call with one of our certified Debt Consultants, who can provide personalized advice tailored to your specific needs.

By taking proactive steps today, you can put an end to your financial stress and work towards a brighter financial future. 

Remember, there is always hope for debt relief, and our team of experienced professionals are ready to guide you on your journey to regaining control of your finances.

For more information on Americor’s debt relief services, contact us today to see how we can help you eliminate your debts, and get on the fast-track to becoming completely debt-free!