Filing bankruptcy can indeed wipe out an overwhelming amount of debt for you. Whether you are an individual or a business owner, it gives you a fresh start and improves the quality of life considerably. The filing of a case in Chapter 7 bankruptcy will place an automatic stay on current debts, which means creditors will stop harassing you from payments, foreclosing your home, or repossessing your property.
Bankruptcy Should Be Your Last Resort, But May Be Your Best Option
However, if you are a high-income earner, know that the 2005 enactment of the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) has made it challenging for you to file for Chapter 7. It also means mandatory credit counseling and financial management education. A damaged credit history means you will have more difficulties in buying a home in the future. A Chapter 7 bankruptcy will stay on your credit report for 10 years.
In short, you should ensure you’ve exhausted all realistic options for addressing your debt before filing bankruptcy. Let’s take a look at some tips.
Tip#1 Make a Budget and Stick to it
Create a budget to keep track of your spending habits. Avoid the urge to use a credit card for all purchases, and instead use a debit card, or online payment, or simply cash. Consider limiting unnecessary spending on alcohol, cigarettes, dining out, shopping, expensive vacations, and gadget purchases. The ideas don’t sound much fun, but it is all towards a debt-free future.
Tip #2 Consider Debt Consolidation
In debt consolidation, you repay higher-interest loans with 1 small lower-interest loan. This is a temporary fix and might give you more time to repay your debts without breaking the bank - but carefully consider your financial situation and expected future income when evaluating debt consolidation as a practicable solution.
If you qualify for such an unsecured loan, you can slowly pay back the amount monthly at a lower interest rate. Some lenders could help you with a reduced payment plan schedule. Personal loans can be considered a good way to go about this strategy. Loan interest rates at an average of 10.46% as of September 2021, are pretty low, which explains the 6% loan debt growth in 2020 as compared to 2019.
Tip#3 Sell Expensive and Unwanted Items
Whether it is an unnecessary luxury car, a collection of antiques, or other valuables, consider selling them to raise a substantial amount to pay off your debt. You can consider selling them to a friend or family member, and repurchase them later when you have the funds.
Tip#4 Get a Second Job
Maximize your income with a second job. This will ensure you can cover your living expenses smoothly, despite having to repay debts. Perhaps you could convince your spouse to do so too. This is the era of remote working, which means plenty of opportunities for freelancers online. Look for side gigs on websites like Upwork or Fiverr.
Tip#5 Consult a Professional
Facing debt and its consequences can be overwhelming. If the bankruptcy filing is the only option you see, make sure to consult an experienced bankruptcy lawyer. An expert might be able to suggest alternatives rather than going down that route. For instance, you could qualify for unemployment benefits from the US government. An example is the CARES act, which provides about $10 billion as Covid-relief to vulnerable homeowners across states, territories, and Tribes.