Thursday, February 01, 2018

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On the Verge of Bankruptcy?  Here Are Your Options

By Bridget Hillyer

In the world of multiple credit cards, payday loans and escalating education costs, debt is a problem many of us face. If your situation becomes overwhelming, it can be tempting to think of bankruptcy as your only available option. Before you make that big step, make sure you understand exactly what it will mean for you and what your other options are.

What Is Bankruptcy?

According to James Shenwick, an experienced personal and business bankruptcy attorney from Manhattan, bankruptcy is “when your liabilities exceed your assets or you have insufficient cash flow to service or pay your debt.” To put that more simply, it’s when you don’t have enough money to pay off your bills.

Filing for bankruptcy is when an individual submits their case to the United States Bankruptcy Court in an effort to be declared insolvent. Depending on the individual’s specific situation, they’ll file under a specific chapter of the bankruptcy code, the two most common being Chapter 13 and Chapter 7. Whichever you choose, declaring bankruptcy is a serious decision that should be avoided if at all possible.

How Will Declaring Bankruptcy Affect Me?

Although no two situations are the same, bankruptcy comes with a number of potential consequences that anyone considering it should be aware of. The filing itself will stay on your credit report for six to seven years, impacting your ability to get credit for years to come. “Chapter 7 bankruptcy filings more negatively affect an individual’s credit report than chapter 13,” says Shenwick. You may also be required to surrender some of your personal property, depending on which bankruptcy chapter you qualify for. Co-signers for any of your debt may also be required to take sole responsibility for it, and not all debt can be wiped completely free. It will be under the discretion of the court to decide if debt like student loans will qualify. It’s also not free to file, with each chapter requiring a different fee. If you choose to seek legal help to navigate the process, that will also cost you.

How Can I Avoid Bankruptcy?

Considering the difficulties associated with declaring bankruptcy, it’s no wonder that people want to avoid it. If your bills have begun to pile up, here are seven steps to help you get yourself back on track and avoid bankruptcy.

Cut Out Unnecessary Expenses

With bankruptcy looming, you will need to make a number of serious life changes to get yourself out of debt. The first is to cut any expenses that aren’t absolutely necessary. Gym memberships, streaming services, extra data in your phone plan, magazine subscriptions and eating out can all go. While this may seem intense, remember that it’s only intended to be a temporary measure. Bare-bones living for a few months to a year, if it helps get you out of debt, will likely be worth it in the end.

See What You Can Sell

That collection of movies and books you haven’t touched in years? Throw them on eBay or have a yard sale. Extra pieces of furniture and collectibles are also great for a quick cash turnaround. Fashion items, such as purses, brand-name sneakers and sunglasses, will earn you some good money if they’re in good enough condition. The website StockX is completely devoted to helping individuals sell their luxury purses, watches and sneakers, so take a look through your own inventory to see what you have to sell. If you don’t need it and you think you could get some money for it, give it a try. Every bit helps.

Get a Second Job

If your current paycheck isn’t enough to cover your bills, then you’ll need to consider taking on a second job. Even if you only have enough time for something on the weekend, like dog walking or working at a coffee shop, the added income will help you pay down that debt faster. If you have a free room in your home, you could take on a roommate, or you could use your car to make money by signing up to be driver for Lyft or Uber. You’ll be busy in the short term, but getting out of debt is worthwhile.

Switch to Cash

Budgeting your income will be a major part of overcoming your debt, so find a method that works for you. If credit cards are part of the reason you’re now having issues, then switching to cash can be a big lifesaver. Put those cards into an envelope, seal it up and get them out of sight. Set a weekly budget for the necessities and make your everyday purchases with cash. This way, you can physically see when you are getting close to hitting that weekly number. Larger expenses, when absolutely necessary, can be made with a check. The time it takes you to fill one out will act as a reminder to spend wisely.

Contact Your Creditors

Creditors may seem like the enemy at a time when you’re debating bankruptcy, but the truth is, they may be able to work with you. Many will be far more interested in finding a way to settle the situation instead of losing the money they lent you. Negotiate with them and see if they will lower your interest rate and work out a repayment plan. You won’t know until you ask.

Refinance Your Mortgage

One solution to high-interest credit card debt is to refinance your home and get cash out. Because your mortgage is secured debt, it has a much lower interest rate than most credit cards. By refinancing, you can use secured debt at a low interest rate to pay off high-interest unsecured debt. This will save you on having to make large interest payments in the future as you work to become solvent again.

Borrow from Friends or Family

Since it can put a serious strain on any relationship, borrowing money from your friends and family should be saved as a last resort. However, if the money will help you reach your long-term solution and isn’t just a temporary fix, then you should give it serious consideration. Make certain that you plan out how you will pay the individual back, and be as clear with those terms as possible before you borrow the money. This will help you both avoid uncertainty and tension in the future.

When Is Bankruptcy Your Only Option?

According to Shenwick, “If living on an austerity budget will not provide sufficient cash flow to pay back your creditors in one to two years, then you may want to consider bankruptcy. An experienced bankruptcy attorney can help you make this determination in a 45 minute to one hour consultation.” Remember that declaring bankruptcy isn’t the end of the world. Yes, it’s a serious decision that you should work very hard to avoid having to make, but it can also provide much-needed relief when you’ve run out of options.

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