As of March 2018, the American Bankruptcy Institute (ABI) reported 187,331 bankruptcy filings with California having the highest total of filings. There are many reasons why both individuals and businesses go bankrupt. This includes:
- Reduced income
- Job loss
- Excessive and unpaid loans
- Unforeseen expenses
- Poor budgeting
On the other hand, there are those who file for bankruptcy to save their assets from garnishment or foreclosure as per the advice of your tax debt attorney. Nonetheless, don’t you think it’s better if you can just avoid bankruptcy completely?
Here’s what you can do:
- Do not ignore debt.
This is the first thing you need to do to avoid bankruptcy. Many people know that they borrowed money at some point but failed to acknowledge, or even accept the fact that this borrowed money must be paid. Ignoring this won’t solve the problem and the fact remains that you owe someone a sum of money. Getting into debt can be detrimental to your taxes. If you are not able to pay your federal income tax because you do not have the funds to do so then this will be flagged up with the IRS causing multiple issues. To help mitigate this, you can look into tax resolution with the IRS and have a tax-resolution-filing-status that can be checked on to make sure you are dealing with your debt issues in a timely manner.
Consequently, know your financial standing. List all existing debts with corresponding creditor, amount, interest rate, and maturity date. Determine how much your assets are to give you a better idea on how you can pay given the funds that you have.
- Come up with an agreement with your creditor/s.
You can pay off your existing debts according to the payment schedule. In case you are in the brink of bankruptcy, you need to come up with a plan to help you avoid this. One approach would be to enter into an agreement with your creditors.
The goal is simple: to make loan repayment easier, affordable, and convenient while ensuring that every creditor will be paid. There are several arrangements you can try:
- Debt Consolidation – From the term itself, this arrangement consolidates all the debts into a single loan with one payment schedule to be followed and a single (and preferably lower) interest rate. This is ideal if you have several debts under the same lender.
- Debt Settlement – This is where you negotiate a deal with your creditors and devise a reduced or easier payment schedule. This will also work if you have several creditors since you can come up with an arrangement on the payment terms to ensure that everyone gets paid. Ideally, debts that were charged off or sent to collection are prioritized.
The bottom line is to inform your creditors that you are about to cross the bankruptcy line. Lenders are prepared for situations like this and they are more than willing to help to get you out of debt.
- Don’t be afraid to sell.
Surely, you don’t want your house foreclosed or your car taken away from you to cover for your debt. Before that even happens, consider selling what you can to help pay off your loans. It could be your second car, antiques, jewelry, and other items with monetary value, or even hold a garage sell.
The amount may not yield so much to pay for the entire loan, but every cent counts. This is better than seeing your house taken from you.
- Look for other ways to earn money.
Your current job may be enough for your daily living. If you are about to take a dip in the Bankruptcy pool, then it’s time to look for other ways to earn money.
The easiest way is to look for a side job. You can also find tons of job opportunities online, so make sure you know what you are good at and bank on it. You can try turning that hobby or special skill into money as well.
Again, the amount of money you will earn from side jobs, regardless of how small it is, can be helpful in paying off your financial obligations. Don’t say no to opportunities that will save you from bankruptcy.
- Borrow from friends or family.
This could be embarrassing for you, but at a time like this, you need to swallow your pride and seek help from other people.
The good thing about borrowing money from your family or friends is that you don’t have to worry about interest accumulating. Nevertheless, it is imperative that you pay them when you can.
Still, be prepared. Some of them might not let you borrow since they have their own obligations as well. If they say no, then don’t force them to lend you money.
- Simple lifestyle is key.
All of these techniques are useless if you don’t start changing your spending habits and financial priorities. Know the difference between wants and needs and start living within your means. Identify your expenses and start eliminating those purchases that won’t allow you to earn, also known as unnecessary expenses. This includes shopping every week, daily morning coffee trip to Starbucks, or eating out every Friday night.
At the same time, look for more affordable alternatives. For instance, instead of riding a cab on the way to work, try taking the bus or even walking especially if your place is not too far. You can also try cooking at home instead of eating out every night. These simple tips may not wipe off your debts, but it could help you avoid filing of bankruptcy in the long run.