How to Avoid Bankruptcy

Bankruptcy is a part of US law (and laws in other countries) that allows an individual or a corporation to cancel or restructure debts if the debts have become absolutely unmanageable. Many people will consider bankruptcy far before it is needed. Since bankruptcy is humiliating, stressful, and damaging. It should be avoided if it can be avoided, and asking a bankruptcy lawyer if it can be avoided is the wrong thing to do. Here are some tips before you go see the lawyer.

	Remember that if you have any secured debt, such as a car loan or a home loan, that you cannot cancel the debt without selling the item. So, if you declare bankruptcy and you own a car that has a car loan, either you have to sell the car, or the loan stays.
	Also remember that student loans (and least the federally insured variety) are not bankruptable. They will stay around until they are paid off or until you die and bankruptcy will not do anything about it.
	The first practical step is to remember to do priorities first. Don't let some collector from a collection agency stop you from feeding your family. Food is first, utilities are second, and then come things like paying your house, your car, and for some clothing. Let the collectors yell and scream.
	Get on a written budget. A written budget is where you plan where the money goes before it comes in. Doing this will give you control of the situation. If a creditor calls and asks you to pay more than you have in the budget, tell him that the money just isn't there - tough luck, he'll have to sue you. (Most credit card companies take a good long time before they actually get around to suing someone.)
	Stop all 401(k) and other retirement and college saving contributions.
	Tell your unsecured creditors (credit cards, etc) that you are considering bankruptcy. In a bankruptcy, they might not get anything, and they will have to, by law, settle for what the judge decides they get, so they may be more willing to negotiate.
	If you have a student loan, try to get it put on hardship deferral until you get back current with everyone else.
	Try to sell your secured assets, especially cars. If you owe more on the car than what it's worth, go to a local bank or credit union and try to see if you can get a loan to cover the difference. You can also talk to the company that holds the car loan and see if they will let you sign a note with them for the difference in sales price and what you owe.
	Sell your other stuff. Have garage sales and put everything you can on eBay. Use the money to get yourself back on stable ground.
	Get extra part time jobs. Look at local pizzerias to see if any of them need extra drivers. If your elderly neighbor's lawn needs mowing, see if he or she will pay you to do it instead of paying an expensive company. You could even clean houses.
	If you got a substantial tax refund last year, go down to your Human Resources department and tell them you need less money withheld from your paycheck. For example, if you got a $3600 refund last year, that means each month you were letting the government hold onto $300 of your money (and they don't give you any interest on it.) Work with your HR department to decrease withholding to the point where you will have a minimal refund.
	Once you are back stable, pay off all the creditors (they may be willing to settle for pennies on the dollar!). Then never go back into debt again.

• Don't worry about your credit score one bit. If you're close to bankruptcy, it's time to learn that borrowing money isn't the way to go anyway, so you won't ever need a credit score again.