Have you ever wondered how to avoid bankruptcy? Bankruptcy often occurs when people are unable to pay their debts, and the consequences of declaring bankruptcy can be severe – your credit score can drop, which can make it difficult to take out loans in the future, and you could lose your assets as well. Luckily, there are ways to avoid this financial company liquidation by following these steps below.
The Basics
If you’re not sure whether bankruptcy is right for you, it can be helpful to understand a few key basics. The bottom line? Nobody wants to file for bankruptcy. While bankruptcy is a financially liberating option, it’s never chosen lightly. However, it might just be your best bet in dealing with unmanageable debt and other financial woes. In fact, bankruptcy can do wonders for your credit score—not long after filing and getting approved for bankruptcy, your score will typically start rising again toward what’s considered prime territory (690+). That said, being free of debt doesn’t mean being free of bills!
What is bankruptcy?
It is a legal status of a person or other entity that cannot repay debts to creditors. In most jurisdictions, bankruptcy is imposed by a court order, often initiated by the debtor. In some countries, including the United Kingdom, bankruptcy is limited to individuals; other countries allow corporations to go into bankruptcy. In some jurisdictions (such as Canada and Germany), in order for insolvency proceedings to be initiated against an individual, there must be proof of dishonest acts such as tax evasion.
When do you file bankruptcy?
If you file bankruptcy too soon, you may not be able to get Chapter 7 protection. Creditors are allowed to ask for a means test, which would mean they’d have access to your monthly income and expenses. If you earn less than median income or don’t have much in assets, it could disqualify you from filing for Chapter 7 protection. Plus, filing too early can harm your credit score—if lenders believe you’re a high-risk borrower and that it’s likely you’ll declare bankruptcy, they’ll be more hesitant about giving out loans or other lines of credit. If those lines of credit go unused because no one will give them to you, good luck building a positive financial history.
How to avoid bankruptcy
Finding yourself unable to pay your bills is one of life’s most stressful experiences. If you find yourself in that situation, though, there are ways to avoid bankruptcy and work toward an easier financial future. A consumer proposal is a popular alternative to declaring bankruptcy. By working with a licensed insolvency trustee, you can reach an agreement with your creditors for reduced monthly payments. As of November 1st 2016, you must be under $250,000 in debt and have less than $5,000 per month in income to qualify for a consumer proposal. If it seems like filing for bankruptcy may be your only option , you should know that it comes with its own set of challenges.
Tips on how to stop filing for bankruptcy
This can be extremely difficult and will probably take a long time. Because filing for bankruptcy has become so common, however, creditors are wary of lending to people who have filed in recent years. The result is that once you’ve gone bankrupt, it can be hard to get creditors to lend you money again. If you’re drowning in debt already, it’s important to stop filing for bankruptcy if possible and start focusing on repaying your debts instead. Start with an immediate payment plan that gives you some breathing room—30 percent of your net income is a good amount to try for—and make sure to stick with it. It may take a year or more before lenders trust you again and your credit score rises, but patience pays off in the end.
