Some Tips to Avoid Bankruptcy when You’re Right on the Edge of Filing…

Will I Ever Be Debt Free?

This question haunts the minds and hearts of individuals all around America. Due to the increase in debt through credit cards, personal loans, re-financing, etc., more and more individuals and families are finding themselves burdened under a heavy load. It seems almost impossible to escape the chains of debt for low income families.

The Solution of Bankruptcy, Or Not…

Although bankruptcy seems like a solution to debt problems on the surface, it tragically hurts families in the long run. Imagine a young family just starting out and getting involved in too much debt, whether ignorantly or not. A couple of years later, they feel that there’s no other alternative – they must file bankruptcy. This is the mindset of most young couples, even though this mindset can be deceiving. More times than not, there are many alternatives, but the person pressuring them to file will lose money if they reveal the alternatives.

The American Bankruptcy Institute reports that bankruptcies set another record in 2003, with 1.6 million personal filings. This is very sad because filing bankruptcy devastates one’s credit for years to come, and causes lenders to shy
away from these families in the future.

Bankruptcy also hurts the economy because the lenders and businesses involved lose out on their re-payments. This creates a bad business relationship for future dealings with the family who is filing.

How Then Can the Debt Problem be Solved?

There is no easy answer. If there were, everyone would probably be debt free today. However, there are solutions to help avoid drastic measures such as bankruptcy.

Below is an overall view of how to avoid filing for bankruptcy:

First and foremost, write down all of your family’s assets (from least to greatest). This can include anything from a portable building in the back yard which holds your lawnmower to the kitchen table – even your own bedroom suit!

In any normal financial analysis, these items might not appear as assets on the surface, however, when you’re thinking of taking a drastic measure such as bankruptcy, everything you own should suddenly become an asset, like it or not.

NOTE: Do not include your larger debts such as mortgage or car payment in this area. We’ll talk about that in a moment.

Second, total up the value of these items and also any debt owed on these items. For example the actual (sales) value of your living room suit may be a total of $500 (if sold from the local newspaper or at a garage sale). Perhaps you still owe $300 to the furniture store in debt. Write down a price for which you could probably sell the furniture and also
the amount owed in a column beside it. Create a table including all of your assets and write down these figures for
each item.

When finished, total the two columns to find out whether or not it’s possible to pay off these debts through selling some
items. For example you may have listed 25 items as assets, but the sale of 3 of these items may pay off the entire debt
of these items. If this is the case, you may be in better shape than you originally thought!

Look over your assets with your mate, and decide what you can do “without” for a while. You may say, well I certainly
can’t do without a bed! Yes, you will need a bed, but imagine sleeping on a cheaper bed for less. You’ll have to come out of the clouds in order to avoid bankruptcy. You’re probably living way above your standard of living. This is a hard fact to face, but once you start being happy with a simpler life, you will feel the burden of debt roll away. I promise this will occur, but it takes a “stepping down” on your part.

Perhaps you owe $300 on your bedroom suit, and you may be able to sell it for $400. Then, you can pay off the $300 debt, and buy a used suit for $100. You’ve just killed two birds with one stone. First, you’ve payed off the entire bedroom debt. Second, you now have a bed to sleep in at night without the debt. This is a great feeling and you’ll sleep better, even though the bed you’re sleeping on isn’t as fancy. You’d be surprised at how nice used furniture can be!

The bedroom suit scenario is only one example. There are many “things” in your possession that might benefit you
in this way.

How Would Paying Off these Small Debts Solve My Overall Problem?

Depleting your debt in the small areas will free you to pay more towards the larger debts. If you make 5 small payments per month on “odds and ends” items such as bedroom furniture, etc. which equal to $500 monthly, then paying these small debts off would mean freeing $500 to pay your larger debts. If you’re really in the hole and can’t even buy groceries, you may want to put $200 towards living expenses and the additional $300 towards your large debts.

The Third and Final Step:

You can contact each creditor and let them know the options you have:

Option Number 1: I can file bankruptcy and you (as my creditor) lose everything in the process.

Option Number 2: I am currently selling items to pay off my smaller debts in order to free more income to pay your debt.

Let them know your two options. Then ask this question….

“Is there any way that I can make up for lost time and back payments with (creditor’s name here) to pay off this debt without filing bankruptcy?”

Or, you could word it like this…

“Do you have any payment plans available which would allow me to make current payments to you AND back payments to get caught up? I’ve been budgeting my money and taking steps to get back on track, and at this time, I would be able to pay you $XXX.XX amount of money per month total. This should increase with time as I get back on my feet. I do not want to go the route of bankruptcy if at all possible.”

You may think that large banks or companies are not willing to work with individuals who are in dire straits, but this is far from the truth. The truth is that almost any creditor (small or large) wants to receive payment back for loans. Why would they want otherwise? Any payment is better than no payment at all, plus they keep you as a customer for the long term. Calling them or visiting in person to talk this over is a step that most people will not take because they figure there’s no use in trying. Making this simple step will show your creditor that you are trying to work the problem out sensibly, and you do not wish to be lazy in the matter.

Once you’ve come to an agreement with your creditors, write down all agreeable payment amounts (monthly preferred), and keep a good budget with these amounts. Make each debt top priority to show good faith that you are going to follow through with your end of the bargain. If you have a choice between buying groceries or paying one of
these bills, then pay the bill – and pray for groceries. Most people have plenty of family and friends who would not let them go hungry.

Although dramatic, this process works in most cases, and helps you to keep your head above water when it comes to debt.

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