How to Handle Bankruptcy

Steps to Take Before Considering Bankruptcy

Empty pocketsDebt is an increasingly large part of our society today, and presents a burden to such a large number of people that it is completely unprecedented in human history. Debt isn’t inherently bad, as it has enabled a faster cycle of wealth throughout our economy, which is a boon for everyone. However, large and crushing debt can leave people buried and hopeless.

Even somewhat manageable debt can quickly spiral out of control if someone runs into a string of bad luck, or makes an unexpected mistake. For these people, the federal government provides several forms of bankruptcy, where their creditors are paid by the government, releasing the obligation of the debtor. However, bankruptcy leaves a lingering effect on a person’s credit, and can impact a person’s life for many years.

For this reason, it’s important to always contemplate whether it’s the right time to file for bankruptcy. Here are some steps you should always take before actually considering pulling the trigger on bankruptcy…

Thoroughly budget

Couple looking at bank statementFirst of all, some people have a more apocalyptic view of their debt than what reality actually reflects. If you are looking at all of your debt and can’t find a conceivable way to pay it back under the constraints of your current lifestyle, then maybe what you actually need is a lifestyle change.

This isn’t to say that you should forego necessities, like a roof over your family’s head or food for yourself and your children. However, trying to impose some degree of austerity may be needed, for some period of time, while trying to get out from under the weight of bankruptcy. Before attempting to declare bankruptcy, always thoroughly budget your lifestyle to see if there are clear places where you can cut back and make room to pay back your debt.

Call your creditors

Many people think that they are only able to pay back debt under the current conditions that their creditors are placing on them. However, it is in a creditor’s best interest to get their money paid back, at least to some degree. For this reason, if you have a surplus of creditors trying to collect from you, it is worth it to call them and try to negotiate on the terms of repayment. Oftentimes, you’ll be able to set up a payment plan that works better for you.

In extreme cases, creditors may even create a grace period that gives you time to pay off a different creditor before paying back to them. Indeed, some creditors may even be willing to make a settlement for a smaller amount, if you are able to pay it back in a timely manner.

Get a financial planner

Financial stressSometimes, debt might look like an insurmountable wall to you; something that you simply don’t have the means to tackle. However, there are financial professionals out there who might be able to help you find a path out of the weeds by showing you alternatives that you may not have considered.

Financial planners, or accountants (whether they are normal accountants or CPAs), can help you determine how much you should pay towards your debt every month, what to pay off first, and help you create a payment plan that is logical and coherent. Even though you might pay such a professional for these services, their advice and expertise can pay off dividends.

Ask for assistance

This is a difficult thing for many people to do, but calling and asking for help in a financially tight spot is something that simply has to be done by many people, at some point in their lives. If you have a friend, family member, colleague, or even business partner who might be able to assist you in paying off some of your debt, it’s worth a shot to call up and ask if they might be able to help in any way.

Sure, this might sound a bit like robbing Peter to pay Paul, and it is, but you’re probably going to be able to borrow money from a family member without the weight of compounding interest weighing on your financial situation.

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