How to Avoid Bankruptcy

You don’t need to file bankruptcy to solve a trivial financial problem or when a more targeted remedy is available. Although you shouldn’t view bankruptcy as a last-ditch solution, you probably shouldn’t make it your first consideration, either. Consider the following solutions before deciding that bankruptcy is the way out.

  • Budget. If you can get your financial house in order through discipline and careful budgeting, go for it.

  • Allow your family to bail you out. If a parent or other family member offers to save your hide, accepting that generosity is tempting. But make sure that he or she

    • Is ready, willing, and able to help.

    • Can pay your debts without suffering financial hardship.

    • Can truly solve your problem, not just postpone an inevitable bankruptcy.

  • Sell your assets. If you own assets that you’d lose to a bankruptcy trustee, you may want to consider selling your stuff to pay your debts. If that doesn’t raise enough money to pay all your debts, it at least helps whittle down your debt load.

    Every state has laws that make certain essential assets exempt or off-limits to creditors, regardless of whether you file bankruptcy, usually including homesteads up to a specified value, pensions, basic household furnishings, and a modest vehicle.

  • Transfer credit-card balances. Although trading high interest rates for lower rates is worth checking out, credit-card balance transfers seldom are effective. And if you end up in bankruptcy, you may be facing an allegation of fraud, and your creditors may fight to prevent the debts you owe them from being wiped out.

  • Restructure home mortgages. You may be able to free up some cash by restructuring your home mortgage. Basically, you can do this in one of two ways: arranging a mortgage workout agreement or refinancing.

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