Guide to Avoiding Bankruptcy

By Chris Blanchet

There are several reasons why you must avoid bankruptcy at all costs. In the first instance, it may look like the best solution, as it offers a clean state, freeing one from all the debts that one owes to various creditors and that were almost impossible to pay off otherwise. Still, it is not the right solution because you may get instant relief because of this but in the long run it will make your financial life terrible. You can realize the severity of the consequences with the very fact that it may even affect your future employment. That is the reason why you should do everything that you can to avoid bankruptcy.

These are some of the things you can do to determine the likelihood of avoiding bankruptcy.

Prepare a full snapshot of your debt load.

The first step you can take is to get a full picture of your debt load. Start with gathering all of your loan and credit card statements to determine the amount you are paying in terms of monthly servicing costs, interest rate, and total debt. Weigh these bills against corresponding assets, such as real estate in the case of a mortgage. Use his opportunity to determine if there are other assets that can be liquidated to repay debt.

Healthy Vs Unhealthy Debts

By listing all of your debt and aligning them with corresponding assets, you can also categorize these debts as "healthy or unhealthy." The purpose of this step is to see just how bad the situation is. If you have plenty of offsetting assets, then bankruptcy probably doesn't make much sense as you stand to lose these items in liquidation. While real estate will offset a mortgage, medical bills, most consolidation loans, and credit cards will not have an offsetting asset.

Create a Budget

After analyzing what your net worth is, consider your solvency. This means taking your income and subtracting all monthly expenses from this amount.

Spend Less and Earn More

While this might seem like the most contentious piece of advice ever, it makes sense when you look at it in small chunks. Just by saving a couple of dollars a day will result in over $750 in saved expenses every year. If you can increase your hourly wages by the same amount, you increase your after-tax income by at least $2,000. Between the saved expenses and the increase in wages, you will have another $2,750 to repay debt every year. Believe it or not, combining a spend less policy with a nominal raise can accelerate your progress toward a debt-free lifestyle.

In instances where the debt load is financial insurmountable, as demonstrated and supported by the above exercises, the advice and assistance of a state-qualified credit counselor should be sought. Another alternative would be to invest a small amount into a detail-oriented e-book on the subject of personal finances as well as a series of software programs that can help guide you on your journey to fixing your finances. A comprehensive program should run you less than $50 and is well worth the investment. - 16931

About the Author:

Chris Blanchet is the author of the Personal Finances e-book Help Fix My Finances, which also serves as the foundation of the Members Only website of the same name. You can visit his Debt-Free Blog at HowToRepayDebt.com.