Bankruptcy is a word that gets tossed around as people struggle to find financial traction in a tough economy.
It’s understandable to a certain degree; stable finances are hard to come by with rates of unemployment and retirement savings as they are.
Having said that, there are myths about the process, and one of them is that bankruptcy is a cure-all to bail out of hard times.
Of course, it provides relief to people in dire situations, but there are serious consequences.
Before throwing in the towel, finances should be approached with calculated preventative measures.
If you are struggling financially to the point of considering bankruptcy, there’s still time. Below are some actionable ways to potentially alleviate financial pressure and reestablish your financial foundation.
Understand the situation
Before you file for bankruptcy, you need to properly assess your situation from all perspectives.
Many people think that they need to file bankruptcy simply because they’re having trouble with common bills and car payments after losing their job.
The significance of bankruptcy is much more far-reaching than a rough patch requires, and it can work wonders for you to better understand your finances really are before taking that step.
Too often people prematurely enter a filing. This results in a credit score nosedive, which can make finding housing, a loan, a vehicle, and even a job all the more challenging.
Even if you do end up filing, it helps to understand your situation in its entirety before doing so.
Identify and arrange bills
The desire to file for bankruptcy usually stems from piled up bills.
It’s a good idea for you to first identify and then prioritize your costs.
Many people enter financial duress specifically due to a lack of organization in their priorities.
Finances are a math problem, and sitting down and getting the equation arranged is the only way to solve it. A couple things you should figure out:
- Every bill that you have
- When each bill is due (record this in an agenda)
- How much each bill is for
- If there are any ways to reduce, postpone, or eliminate any of those bills
- Consider credit counseling
Be proactive with the resources you do have
The main reason that bankruptcy is considered is because it alleviates immediate obstacles, but the aftershock hangs around your financial world for years and years. It’s not a hole you can’t climb out of, but there are consequences. Some resources you should consider are:
- Financial advisors at your banking institution
- A lawyer or other professional counsel
- Insurance coverage contacts, such as income insurance by AAMI
- Family and friends (especially if you’re in a family-operated business)
- Employer leadership and human resources
Take preventive measures for future financial strife
When you find yourself able to wrestle free of debt, it’s best to behave in a way to reduce the impact that future financial woes might have on your family.
Save responsibly to always maintain as close to a good emergency rainy day fund as you can.
Traditional wisdom holds that the ideal fund to overcome tough economic times is enough money to tide your family over for six months.
However, in this day and age, unemployment can go on for much longer, so consider every avenue you can to save.
When people struggle in life, there are usually resources around them to help weather the storm.
Oftentimes, they’re just not able to pinpoint exactly where to go or who to talk to. If you’re proactive with what you already have available to you, you’d be surprised with the progress you can make.
There’s a reason that bankruptcy exists, but it’s for situations of complete vulnerability when no alternatives exist.
And this is for good reason – bankruptcy has an enormous effect on your financial credibility in making large decisions in the future. If you can possibly sidestep filing simply by being proactive and organized, you might find yourself well on the way to financial normalcy once again.
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