Bankruptcy may be a suitable option for someone with considerable debt, no income and no assets. If you can’t pay your debts, then you may be declared bankrupt. In order to be made bankrupt, a court will have to issue an order against you – this can either be done at your own request, or at the request of your creditors or an insolvency practitioner.
Once a bankruptcy order is made, your accounts will be frozen and your money will come under the control of a court official known as the official receiver. In a society where living beyond one’s means has become the norm, a brush with bankruptcy can be a sharp reminder of the need for a lifestyle change.
- Know your spending limit: Putting together a budget is the quickest and easiest way to get a handle on your spending habits. Then comes the step to curb your spending. This includes both the big stuff and the small stuff because every penny counts. One who is really considerate will also be willing to give up on big-ticket things that could include moving to a smaller house, driving a less expensive car, selling your motorcycle or any other recreational vehicle, skip vacation plans etc.
- Take the next step, multiply!: Once you’ve minimized your expenses, you may still not earn enough money to pay for your living expenses in cash. If that’s the case, it’s time to maximize your revenue. You can always go out and get a job. If you have one, get another job. Sell the stuff you bought in your free spending days, split the rent you pay by taking in a roommate , invest the money wisely into something more meaningful. Nobody said that getting yourself out of debt and back on sound financial footing would be fun or easy, but if you’re contemplating bankruptcy, you are in trouble and you need to do something about it.
- Seek consumer credit counselling: A consumer credit counselor can work with you and your creditors to put together a debt management plan to repay your debts over three to five years. If you don’t have luck working with your creditors on your own, enlist the help of a professional. The new bankruptcy law requires credit counseling prior to bankruptcy filings anyway so it’s worth it to strongly consider credit counseling as a bankruptcy alternative.
- Connect with a financial coach: When looking for a financial coach, just make sure you find someone who has the heart of a teacher. You want a person who will walk with you and guide you along the way—not someone looking to take advantage of your situation. Sometimes it’s best to sit down and talk with a financial coach when you need guidance with money issues. Don’t let that intimidate you.
- Ask for your family or friend’s help: Normally, borrowing money from family and friends is a bad idea. It’s been known to create hardships and even end relationships. But there’s an exception to every rule, and bankruptcy is one. Carefully consider how much you’re able to contribute to your debt, then ask friends and family to help you make up the difference. Before you approach them with your wallets turned out, come up with a plan for how you will repay them once your financial situation has turned around.
Living with any type of financial hardship is one of the most difficult things that a person has to deal with. Bankruptcy can result not only in a damaged credit score, but accounts can be frozen and interest can continue to accrue until a court ok’s your bankruptcy filing. With recent regulation changes, filing for bankruptcy is not as easy as it once was, and there is never a guarantee that a person will be allowed to file.
While it is sometimes an effective solution to debt, it can have dramatic implications on a person’s credit rating for up to a decade after it has been filed. Therefore, a person should only file if it is absolutely necessary. Other options should be considered first.