49 Tips

How to Prevent Bankruptcy

Submitted By: Tommy Black in Finance Tips category

The word, bankruptcy has its origin from the Latin word ‘bancus’ (a table or a bench), and ‘ruptus’ (broken). In today’s world, bankruptcy is referred to the status of a person or an organization that has debts to be paid to the creditors. If a person or organization has gone bankrupt and is unable to repay back the debts to its creditor, a bankruptcy petition can be filed in the court. On filing the petition, the automatic stay is activated on the issue by the court. After this the creditor cannot take any action on the debtor till the court decides a way out of the situation.

Bankruptcies are generally of two types. They are liquidation bankruptcy (known as chapter 7 bankruptcy) and reorganization bankruptcy (known as chapter 13 bankruptcy). In the case of liquidation bankruptcy, the creditors are paid back by selling the assets of the debtor. In reorganization bankruptcy, some of the debts are paid while others are paid in percentages and the rest are not paid. Whatever is the repayment method, bankruptcy is something which may result in liquidation of a business or it may leave a person hopeless with no bank balance. So it is better to know how to prevent bankruptcy.

How to Prevent Bankruptcy

When considering in person, bankruptcy can be avoided by taking some safety steps. Keep record of your bank balance and you expenses. Avoid using credit cards if you don’t have enough money to pay it off. The bank people may offer you several credit card offers, but don’t get into it. Buy goods only if you have enough savings to buy that product. Don’t take unnecessary risk in investments. Do not go for luxuries which you cannot afford. If you have any debt increasing day by day due to reasons like illness, job loss etc., it would be better to talk to your creditor to find out a way out for the situation. The creditor may give you some flexibility in repayment of the debts like decrease in penalty. There are many credit counseling services that can help you negotiate with your creditor.

Many people have the habit of living on credits. They often have huge amount of debts on them. Avoid this type of a lifestyle because it may give you present luxury and fulfillment, but can cost you a lot. It may lead to your bankruptcy. If you are in a condition of excessive debt and you are not left with any option, then by filing for bankruptcy you can try to avoid it with some measures. You can sell your assets which are luxurious items and which would not affect your normal living or would not deprive you of your basic needs. Repay the debts by selling such assets.

You can take the help of online services to sell your furniture, electronic goods, or jewelry.

You can borrow money from your relatives and friends in your hardships. In the situation of financial difficulty like this, first of all calculate the total debt amount and then see how much do you have with you or how much you can arrange by selling your assets. Calculate the balance amount and then you can ask for help from your friends and relatives. However, it is important to note that before you go for help to your friends and family, you should plan the way you are going to repay them back.

You can use debt consolidation program for paying your debts. According to this program, you can consolidate your debts into one monthly payment. Hope the above mentioned tips on how to prevent bankruptcy help you to have a financially safe and secure life.

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