According to Webster's Dictionary, bankrupt describes ?a person legally declared unable to pay his or her debts? (and generally) the property of a bankrupt is administered for the benefit of his or her creditors and divided among them." Often, it is the debtor that requests the bankruptcy; however, the lenders can also initiate the proceedings. The two main goals of a bankruptcy are to give the debtor a clean slate by reducing or relieving the debt and to get the lender as much repayment as possible. These two goals, however, can often be accomplished by other means, in order to avoid bankruptcy.
Of course, the goal is to avoid bankruptcy. It is generally accepted that bankruptcy is one of the most negative and life-changing events that can occur in a person's life. In addition to the emotional stress, the practical effects of bankruptcy are long lasting. Generally, bankruptcy will stay on your credit report for between seven and eleven years. Potential employers may ask if you have ever declared bankruptcy, and it can affect you ability to secure loans and/or insurance in the future.
John Porter, a senior counselor with The Debt Counselors says, ?Not only are the personal debt levels high, but the fact that bankruptcy is rising sharply shows that the debt in many cases is unmanageable. It also shows that there is a lack of knowledge regarding debt solutions and ? (how to avoid) bankruptcy.?
There are practical steps you can take to avoid bankruptcy. They may take some time and effort, but the work is worth it if you can indeed avoid bankruptcy. First of all, call your creditors. Explain your situation and ask them to make different arrangements with you to help you avoid bankruptcy. Ask for a lower payment or lower interest for a certain amount of time. This break may be all you need to get re-established and to avoid bankruptcy. Many times, the lenders will selfishly work with you. They want to get as much repayment from you as possible, so it is in their best interest for you to avoid bankruptcy as well.
If your creditors will not work with you, then you may want to call a/your bank to research debt consolidation, another way to avoid bankruptcy. Often, you can take out a personal loan to cover all you owe elsewhere. With a debt consolidation loan, you only have one lender to work with and one interest rate that is almost always lower than the interest rates you'll pay if you continue making payments on your high interest debts. Another benefit of a debt consolidation loan is that you'll only have one monthly due date and only one place to make payments to instead of multiple companies and financial institutions. Debt consolidation gives you all of these benefits, and it will help you avoid bankruptcy.
Very practically, changing your spending habits can help you to avoid bankruptcy. Many financial planners suggest keeping a spending log or a budget for a month, so you will see where your money goes and how you can change your spending habits. And, if you need some help with self-control, cut up your credit cards.
If you are looking to avoid bankruptcy, take some of these simple steps today. Also realize that there are counselors available if you feel that you need help getting yourself out of the red and avoiding bankruptcy.