Avoid Bankruptcy With Debt Management Strategies

When you are facing severe debt burden, it’s reasonable to think of bankruptcy as an option to help remove the debt or make the repayment of the debt manageable. Bankruptcy shouldn’t be your first choice, but instead should be your last. Is there a way to avoid bankruptcy with debt management strategies that can help you get back on the right foot financially?

The simple answer is yes. If you are planning to file bankruptcy, first you should know that you will not in all cases be able to avoid your debts. If you have a regular income, you will likely be required to file for Chapter 13 bankruptcy, which will set up a repayment plan for you to repay your debt. As a result, the payment plan you set up in bankruptcy is probably close to a program you can set up on your own, outside of bankruptcy court. Why did you choose to file for bankruptcy, if you can manage debt payments without it?

Start by talking to your lenders, and see who will agree to take affordable payments for the short run. Work with your secured lenders first – car loans, home mortgages – so that you don’t lose your asset. Unsecured creditors should be paid last. There are many online websites where you can find free debt snowball software and other resources to help you negotiate payments and figure out what you can afford.

If however you are not working, and have no steady income, you might benefit from filing for bankruptcy. Not having a way to pay back debt means you would file Chapter 7, to discharge your debts. Unfortunately, you may also have to sell your home or give back cars, if you cannot pay those secured creditors. Even if you are not working, it is still possible to talk to your lenders to see what you can work out in the way of a temporary hold on your payments until you get on your feet again.

The key debt management tactics you want to use are trying to make payments on your secured loans, to keep your home and cars if you need them to get to work. After that, make sure your personal needs, such as food, shelter, and utilities, are taken care of. With whatever cash you have left, make arrangements to pay a portion of outstanding debt to your unsecured creditors, usually credit cards. If you have student loans, the student loan agencies will often work with you on a hardship plan to reduce or temporarily stop payments.

If your unsecured or secured lenders refuse to work with you and start legal collection proceedings, you may have to file personal bankruptcy to prevent them from getting a judgment against you. But that should be your last resort. Yes, the creditors may call you, but they can’t harass you, or family members, to get paid. Stick to your payment plans, and once you get on your feet, you can increase your payments. Use bankruptcy as a last resort, if there is no way you can repay your debts on your current income.