Filing for bankruptcy can be one of the worst things you can do to your finances. The ability to erase your debts with this legal process may seem like a quick fix for your current financial predicament, but it will actually do more harm than good. If you go through with this, your credit score will be negatively affected, which can impact your chances of qualifying for credit or other loans you may need.
There are many reasons why you may have to file for bankruptcy, such as unemployment or divorce. However, It is important to avoid bankruptcy if at all possible, and these are a few preemptive measures you can take to avoid it:
Ask about consolidating debt
Chapter 7 bankruptcy is one of the most common filings for consumers. During this process, your debts will be liquidated, but some of your assets or possessions may be taken to pay off these accounts. If you are considering this route, try to hold out and see if you can pay off your debt in any other way.
Ask your lenders if they offer any consolidation options, which will combine your debt into one monthly payment. This may be easier than giving up your assets or even your home to help settle your debts. Before you choose this option, be sure that you will be able to make these payments. If you are late or have trouble paying them, you will likely see your credit score drop and be charged late fees.
Look into restructuring your mortgage
Many people may have trouble paying off their mortgage and want to declare bankruptcy to deal with that debt. If you are in this situation, you could see your home getting repossessed and your credit score being affected in the process. To help with these payments, look into getting your mortgage altered. You can try to restructure your payments under your current plan or you can ask about refinancing. By having a lower interest rate, you will be able to save some money, which can come in handy when paying off your debt.
Inspect your current budget
One of the simplest ways to take care of your debts is to cut your expenses. Reshaping your budget and minimizing expenditures can go a long way in saving money and whittling down your debt. This will be more beneficial than declaring bankruptcy and sacrificing your credit score in the process.