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Avoid bankruptcy, take control of your debt, and repair your finances

If you are overwhelmed with debt, you may feel that bankruptcy is your only way out. There are usually two different options that consumers have when entering into a bankruptcy.

A Chapter 13 is a restructuring of the debts. The debtor will work with their creditors to create a payment plan for them to pay down these debts. Although this may help a person get in good standing with their creditors, it doesn’t necessarily mean that they have broken the credit card spending addiction.

A Chapter 7 bankruptcy, is a discharge of the qualified debts. In comparison to Chapter 13 which can take 3-5 years, a Chapter 7 can be done in less than 6 months. In both cases, it may take over 7 years for their credit score to rise and then be able to open a new line of credit, get a mortgage, or borrow at reasonable rates. In some situations, a non-bankruptcy course of action may be a better choice. Here is some helpful advice for bankruptcy and bankruptcy avoidance.


Do tally up all of your debt and assets

Make sure you know how deep in debt you really are, as well as how much available assets you have. First step to figuring this all out is to pull a copy of your credit report. This will give you a better picture to evaluate your financial situation in order to determine if bankruptcy is really necessary, or if you have enough funds and assets to explore other, less damaging, options.

Do explore other options

Take some time and research what other options are available to you other than bankruptcy. There are viable options for people who haven’t crossed the threshold of absolutely needing to file for bankruptcy like legal debt settlement and credit counseling. Speak with a reliable debt counseling company, bankruptcy lawyer, or financial advisor when making this decision. Make sure that any company you deal with is licensed and physically located in the state you live in.

Do begin to change your financial habits

Even as you are still working on getting your finances back on track, try and pinpoint some key mistakes that you made and how you got there and try to change those habits. This will ensure that all of your hard work to get debt-free won’t be for nothing, because you don’t want to find yourself in the same situation in the future.

Do consider downsizing or restructuring your budget

Many people are living lives that they simply cannot afford. If your housing is more than 1/3 of your net take-home pay, consider downsizing into a smaller home or rental. Once you get over the emotional attachment you may have to your home or property, it will become a little bit clearer that downsizing is a great way to free up cash flow and get you on the road to financial freedom.

Do consult with a trusted professional

Any type of debt management or relief is a huge step, and all pros and cons should be weighed before committing to anything. After you have weighed your options, consult with a financial or legal professional who will give you his or her honest opinion on what the right route is for you and your family. Make sure you consider a second opinion on your situation and a second option other than bankruptcy.


Do not ignore the debt

Ignoring your debt and thinking it will just disappear on it’s own will put you in a worse position. Everyday you wait, more interest accumulates, which will only put you deeper in debt. The first step to resolving the problem is admitting that your debt has gotten out of control and you need assistance with managing it.

Do not stop paying your mortgage or borrow from retirement accounts

Although bankruptcy is an extreme measure, it is not worth the risk of losing your home or ruining your retirement to avoid it. Borrowing or taking out another loan is just robbing Peter to pay Paul and will not help you get out of debt. Consider other ways to free up cash flow to pay down debt. Downsizing and simply setting a strict budget can help you free up some money to help you pay off certain credit cards or overdue hospital bills.

Do not try and negotiate the debts on your own

Although this does work for some, it can be a sticky situation if it is not done or documented correctly. Plus, if you are so deep in debt that you are considering bankruptcy, chances are you don’t have the time or energy to correctly and successfully settle your accounts with your creditors. Leave the hard work to the professionals, and if you do decide to try and resolve some accounts on your own, make sure you have every settlement documented in writing and that it is reported correctly to your credit bureau.

Do not sign up for any program without meeting the professionals in person

There are many fly-by-night debt consolidation and settlement companies out there. To ensure you don’t get scammed, make sure you meet with the person and it is someone you trust handling the sensitive information you are going to provide to them. If a consolidation or settlement company feels a bit sketchy, be sure to do your research and find out all that you can before signing up with them.

Do not underestimate the effect that bankruptcy will have on your credit score

Entering into bankruptcy can help resolve your debts, but it will also affect your credit rating and your ability to borrow money in the future. If you decide that bankruptcy may be the best route for you, make sure to take into consideration how hard the hit on your credit will be, and how long the bankruptcy will show on your credit report for. Different types of bankruptcy will affect your credit for different periods of time, so be sure to ask about this when you speak with a bankruptcy attorney or financial professional.

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For some, bankruptcy is a viable option. Yet, there are many other ways that you can settle your debts and repair your finances without an extreme measure such as bankruptcy. Whatever route you choose to go, make sure you explore all of your options and determine the best plan for you before committing to anything.

More expert advice about Credit and Debt Management

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Leslie H. Tayne, Esq.President

Headquartered in Melville, N.Y. and led by financial attorney Leslie H. Tayne, Esq., The Law Offices of Leslie H. Tayne P.C. is the only New York State practice whose sole concentration is debt resolution and bankruptcy alternatives. Since its e...

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