How To Avoid Bankruptcy

Avoiding bankruptcy has become a national priority, as hundreds of thousands of homeowners face losing their homes to high interest Adjustable Rate Mortgages (ARMs) and unemployment rates continue to soar. Bankruptcy is a legal, but last resort to resolve personal or business indebtedness. Filing a Chapter 7, Chapter 11, or Chapter 13 bankruptcy may seem like a quick fix, but these drastic measures can adversely impact future buying power. Because bankruptcies remain on an individual's credit file for ten years, many financial institutions may turn down future loan applications. Therefore, consumers facing financial crises need to discover how to avoid bankruptcy and consider feasible alternatives to resolving indebtedness.

Financial problems which threaten to end in monetary mayhem don't just happen overnight. Individuals and businesses usually accumulate outstanding debt over a long period of time. Careless consumer spending habits, lack of employment, or an unexpected illness can all be contributing factors. Unfortunately, in a society where excessive spending and extravagance are encouraged, many American consumers have become addicted to credit card abuse. And like a drug addict looking for the next fix, some consumers want what they want when they want it, without regard to cost or consequence. Jesus Christ explicitly taught His disciples to beware of covetousness, or the desire for possessions. (Luke 12:15) "And he said unto them, Take heed, and beware of covetousness: for a mans life consisteth not in the abundance of the things which he possesseth." Spending irresponsibly leads to an inability to meet monthly obligations, extensive late fees, and even more credit card abuse in an effort to alleviate increasing debt. If indebtedness and credit card spending are out of control; and the proverbial Peter is continually being robbed to pay Paul, it's time to take a serious look at how to avoid bankruptcy.

The first line of defense in avoiding bankruptcy is to exercise common sense budgeting and rigorously apply practical money management principles. Stop the credit card madness by destroying them and purchasing a prepaid card with enough money for emergencies, travel or unexpected expenses. Indebted consumers should also make a list of "needs" (life's necessities), versus "wants" (life's pleasures). Budgetary "needs" fall into four basic categories: food, clothing, shelter, and transportation. To save money on food, stop eating out and prepare meals and sack lunches at home for work and school. To cut clothing costs, shop thrift stores, flea markets and yard sales for good quality, slightly used items, especially for growing youngsters. All of these frugal measures should add a little extra cash to your monthly inflow.

Homeownership is still the American dream. But to avoid bankruptcy and keep the dream from turning into a nightmare, homeowners should refrain from buying more house than they have bucks. Purchasing a more budget-friendly home with less square footage and building a future addition, when the family finances are more stable, may be the best option. To save money and wear and tear on the family vehicle, carpool with coworkers and friends. And get rid of that gas guzzler! Trading down to a smaller compact or hybrid could save hundreds at the pump. Learn how to recognize the "budget-busters" and ward off the "wants." Decrease excessive monthly expenditures by cutting off the cable and renting movies and DVDs. Eliminate cell phone debt by purchasing prepaid phone cards and limiting calls to emergencies and travel only. Before spending money on unnecessary luxury items, consumers should ask themselves the following questions: (1) Can the item be borrowed or rented inexpensively without purchasing it? (2) Can the item be purchased later at a lesser price, perhaps on sale? (3) Will purchasing the item put a strain on funds already allocated for "needs"? (4) Does this item duplicate a similar item already in my possession? Answering these questions honestly will help consumers make good buying decisions and go a long way in avoiding bankruptcy.

The second line of defense in avoiding bankruptcy is to seek professional help: credit counseling agencies, banks, mortgage companies, and financial estate planners are all capable of helping consumers avoid bankruptcy and salvage their credit. A reliable credit counseling agency will assess the consumer's total debt and make arrangements on their behalf with creditors to pay off monies owed in smaller, manageable increments, or reduce the debt. Consumers with a combined debt of more than $10,000 can usually qualify for debt settlement. Creditors know that a workable alternative financial plan will eventually decrease the overall debt without ending in bankruptcy, in which case, monies owed may never be recovered. If indebtedness has already reached the point of no return, consumers can still avoid becoming bankrupt. When monthly payments begin to fall in arrears, contact creditors before they contact you! Mortgage companies and automobile lien holders will appreciate honesty and work with consumers to defer or re-structure payments placing current amounts due at the end of the contract, or reducing monthly notes to prevent foreclosures and repossessions.

Financial advisors may also propose debt consolidation to avoid bankruptcy. Banks and financial institutions offer consolidation loans to help consumers combine outstanding bills into one easily manageable monthly payment. Homeowners may qualify by using their home as collateral. Avoiding bankruptcy may also require homeowners to refinance their home and take a second mortgage to cover outstanding debts. Financially strapped homeowners should be careful not to borrow more money with a second mortgage than they can safely handle. Consumers seeking how to avoid bankruptcy may also find a ready source of income right under their noses. Real and personal property, valuable antiques, jewelry, and furnishings may be sold at auction or private sale to obtain additional financing to settle outstanding debts. When consumers find themselves sinking under financial hardship, common sense budgeting coupled with the help of qualified planners and advisors can be a lifeline to financial relief. Once consumers discover how to avoid bankruptcy and reduce indebtedness, exercising good monetary management and a little restraint promises hope for a brighter financial future.

Add to: File Insurance Business article Teen Photo Images