Unlike what you might have gathered from rumors and stereotypes, bankruptcy is not a financial death sentence. Every year, hundreds of thousands of Americans use bankruptcy to obtain much-needed relief from debt and collection agencies.
Bankruptcy is, however, a last resort—not because it has severe consequences but because you usually have several other, less drastic options at your disposal. While bankruptcy is a powerful solution that can give many debtors a fresh start, you should only consider it after you have exhausted all other debt-relief strategies (and consulted a lawyer).
Here are 5 of the most effective ways to improve your financial circumstances and potentially avoid bankruptcy.
1. Reduce Your Expenses
Some people accumulate overwhelming debt through no fault of their own. A layoff, sudden illness or death, or any other unexpected emergency (such as a global pandemic) could lead any hard-working family into the red.
For many, however, arriving at the brink of bankruptcy indicates room for improvement in spending habits and budgeting decisions. If you would like to avoid bankruptcy, you may consider significantly adjusting your budget (or creating one, if you haven’t already). With today’s technology, you can find countless apps that can help you stay organized and meet your financial goals. You can objectively assess your financial situation and discover exactly how much you’re spending each month on wants, rather than needs.
Of course, this isn’t to say that forgoing Starbucks drinks will turn your financial situation around. But every dollar counts—especially when your goal is to avoid bankruptcy.
In cutting your monthly expenses, you may consider:
- Selling any unneeded vehicles
- Skipping vacations
- Driving a less expensive car
- Living in a less expensive home
- Cutting subscriptions (e.g. streaming platforms, gym memberships, etc.)
- Buying used, rather than new
- Spending time with loved ones instead of buying gifts during holidays/birthdays
Without realizing it, many people live beyond their means, and creating a careful budget can expose this problem.
2. Increase Your Income
Was cutting expenses not enough to improve your situation? It may be time to explore your options for maximizing your income.
This doesn’t just mean getting a second or third job. You may be able to increase your monthly income by:
- Negotiating a raise
- Helping your partner find a job or negotiate a raise
- Taking interviews for better-paying positions (even if you feel you might not be qualified)
- Expanding your skillset to help you qualify for a raise or new job
- Finding a roommate to reduce what you pay in rent (or help you pay down your mortgage)
- Asking any adult sons or daughters currently living with you to pay rent
- Selling any possessions you don’t need
- Attending college or trade school (if your prospective profession will help you make substantially more than you do now)
If you do need to get a second or third job, consider Lyft, Postmates, freelancing, or any other job that allows you to choose your own hours.
3. Establish an Emergency Fund
Once you have reduced expenses and increased your income, a savings account can help you avoid falling into the same situation as before. While savings accounts through today’s banks hardly earn interest, the money you put aside can be a much better alternative to charging credit cards with high interest rates.
4. Negotiate Settlements with Creditors
Negotiating with your creditors and lenders can be a serious challenge, but they may be highly motivated to work with you if they believe your only other option is bankruptcy. If you file bankruptcy (especially Chapter 7), your creditors run the risk of receiving little to nothing of what you owe. As such, a settlement can be in both of your best interests. If you’re considering this option, get in touch with a seasoned attorney who can skillfully negotiate on your behalf.
5. Seek Professional Help
This is the trickiest method of avoiding bankruptcy. Paying a well-reputed financial advisor or even lifestyle coach may be a good investment if you need someone to help you make everyday choices. But many “credit counseling” firms, debt consolidation companies, and self-professed experts will charge you substantial fees while making false promises about reducing your debt.
If you decide to seek professional assistance, avoid scams by thoroughly researching each potential company and expert. Be careful of any professional or business that claims to provide quick fixes.
Bring Your Financial Situation to Our Firm
Whether you’re trying to avoid bankruptcy at all costs or file in a way that protects your best interests, Lam Law Firm is here to provide strategic counsel and aggressive representation. We understand how much stress your debt may be causing you and your loved ones, and we can use our in-depth knowledge of the legal system to help you obtain relief as soon as possible.