3 Ways to Avoid Bankruptcy

by Vincent King · 5 comments

There are alternatives to bankruptcy.

Remember when you went shopping for a new case for your iPhone 3 and came home with an iPhone 4S? Well, maybe you didn’t go shopping for a case, but most of us, at some point, have been shopping for one thing and come home with A LOT more than we planned to spend.

Overspending is one of the leading causes of debt, in America and around the world. And if you’re like many Americans, this type of overspending has landed you in such a deep hole of debt that you’re now considering filing for bankruptcy to get you back out.

Debt Swallowed You (And It Didn’t Even Bother to Chew)

Maybe it’s these impulse buys that have led to your problem with debt. Or maybe it’s simply life’s circumstances that have set you firmly in this sick-to-your stomach situation.

Maybe you or your significant other have lost a job, or perhaps the hospital is demanding payment on the ER visit that led to your being in a cast for 10 weeks (without pay!).

Saying there are many reasons people wind up in debt is like saying the ocean is moist. But regardless of the means that led to your unfortunate end, you deserve to stop the suffering.

You Didn’t See It Coming

You didn’t see the mountain rising behind you until it was too late. Decisions were made, and now they must be paid for.

The unexpected has a way of tearing us from the frame emotionally and financially. You got lost, and the mountain of debt has fallen on you. Now you must dig your way out – and you’re thinking bankruptcy’s your best bet (as much as you’d hate to do it).

But you can likely still save the situation.

Alternatives to Bankruptcy

Bankruptcy is often the first solution on many people’s mind since emotions and stress play such a huge part of the financial game. Yet, it’s not always the best solution.

Bankruptcy leaves a scar on your financial record that never goes away…it only fades. Just wait until a company asks you if you’ve EVER filed for bankruptcy. Then Bam!, just when you thought the nightmare was over it’s staring at you with its beady fish eyes of hate.

Avoid it at all costs, even when it feels like you can’t.

3 Steps to Avoid Bankruptcy

Before you consider filing for bankruptcy, consider these 3 steps first.

Return to the Necessities

Do you remember the basic necessities of life? Think back to elementary school. What did they teach you about survival?

Was it credit cards? School debt? A good credit score? Nope. It was food, shelter, water, and clothing. (Not the Dolce & Gabana kind, just a basic loin cloth will do – if that’s all you can manage). Going back to your most primal needs and trimming the wants from your life can help you steer clear of bankruptcy and a disaster that can ruin you financially for life.

Action: Before you buy, make sure your purchase falls into one of the categories that will satisfy one of your basic survival needs: food, water, shelter, or clothing. Tip: Steer clear of the higher end items that fall into these categories – keep your needs basic.

Pay Your House and Car

Shelter being one of those things on your MUST list, make your house payment first, before repaying other debts. While you do need a house, you don’t need a $200,000 home if you can live in a $95,000 one.

After your home, your car payment should come next. You must have a way to get the groceries you need, while also commuting back and forth from work. Again, if you’re that far in debt that you’re considering bankruptcy, it’s time to downgrade your Lexus to a Kia.

Then, work on paying down all other debt after you’ve paid those two necessities.

Sell It All

Instead of holding on to your heirloom dishes, why not sell them off so you can get back to the bare essentials again? You could earn enough from selling your “stuff’ to make a massive dent in your bills. At the very least, you could free yourself, mentally, from the “more stuff” chains.

Your grandmother isn’t going to know you sold her wedding dress, and holding on to it won’t benefit your present situation in the least. But selling it on eBay could yield a nice payday for that unique vintage gown.

Avoiding bankruptcy is something that can save your financial history, and help to repair the damage already done. If you can sacrifice to save it – you’ll likely be glad you did.

Here are 25 more ways to reduce your debt. What other ways can you think of to help fellow readers avoid bankruptcy?

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{ 5 comments… read them below or add one }

KM August 27, 2012 at 2:00 pm

The best way is obviously prevention. Look at your income situation rationally and assess if you can afford the things you are buying. If your salary is $30,000/year and you are driving a Lexus, living in a $200,000 house, dressing in Dolce & Gabana, and eating out every night, you are probably living beyond your means. Living within your means is the best way to ensure you avoid the bad debt altogether.

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Marbella August 29, 2012 at 4:51 am

Always have a good reserve of money, about a year’s salary is about right. Don’t buy on impulse, and plan all purchases. For example, don’t buy all the latest mobile phone, laptop, etc.

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Sumedha Manabarana September 6, 2012 at 7:23 am

Very useful article indeed. ‘Plain living and high thinking’ seems to be the motto.
Best Regards!

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Shane September 6, 2012 at 8:16 am

I never understood why and how people actually get themselves into such debt. I have never purchased anything that I couldn’t afford. I can understand it when it happens to a company but not individuals.

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How to file for bankruptcy September 18, 2013 at 11:17 pm

Yes, This would be great Idea to prevent Bankruptcy as well. The overall goal of every bankruptcy case is to give the debtor a “fresh start.” The “automatic stay” in bankruptcy will apply once your case is filed.

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