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Before Declaring Bankruptcy: Options You Need to Know

The crossroads of bankruptcy and getting help from a counselor.

When debts pile up, bankruptcy may begin to look like a great option. You may have heard that bankruptcy stops all creditors from calling or taking other action against you, and that might sound ideal right now. You may have even been told that you’ll be instantly forgiven of all debts—or in other words—given a fresh start after filing bankruptcy.

However, it’s important to be aware of the steps you can take to avoid bankruptcy’s damaging effects:

Step 1: Reach Out

Call a nonprofit pre-filing credit counselor before doing anything else. Since they’re experts, they can answer all of your questions – including the ones you don’t even know to ask! What’s more, nonprofit credit counselors are working on your behalf, and in a situation where you may feel isolated, it’s good to have someone else in your corner.

During your call, your counselor will determine whether bankruptcy is the right choice for you. You’ll get all of the facts on the pros and cons you’ve heard, and you’ll have the opportunity to clear up any confusion surrounding your filing. Most importantly, if Chapter 7, 11, or 13 is in your future, you’ll be able to fulfill your requirement to enlist in pre-filing credit counseling.

Step 2: Get on a Budget and Take Control

Sometimes, lifestyle changes are all that stand between you and financial freedom. Taking public transportation to work, walking instead of using a car, renting a small apartment instead of owning a spacious home, and asking for more hours at work could be the difference between having an “ability to pay” and declaring bankruptcy. If you take all of these steps, but end up declaring bankruptcy anyway—at least you’ll know you did everything you could. You’ll be able to file with your dignity intact.

Step 3: Tell Your Lenders What’s Going On

Whether you miscalculated, lost income, or encountered unexpected bills that are now too much for you to tackle, it’s important to keep your lenders in the loop. Whatever is happening, communication from you must stay open and clear. This way months or years later, you’ll know you were honest and up-front with your creditors.

Step 4: Consider Debt Management

Negotiating with lenders is a skill. While informing them of your predicament is good, you may need someone to handle consolidation for you so that you get the best rate available. Plus, a professional can establish a single monthly payment for you to keep track of—and that may simplify the entire process.

Step 5: Learn What Not to Do

Study up on the missteps other bankruptcy filers have made before you to avoid tempting pitfalls. These common mistakes vary from small missteps to inadvertent fraud or even ruined relationships. Missteps include:

  • Borrowing from friends or family when you know you won’t be able to pay them back.
  • Selling or giving away possessions that may be taken away for liquidation in the filing process. *This is not to negate the selling of unneeded items at a fair market value to put toward your debt—which may be done long before filing. It’s the “dumping” to “protect” that constitutes fraud.
  • Neglecting children or asking others in your care to work extra hours as a result of the stress or depression that results from financial hardship.
  • Falling further into debt (by entering into more loan agreements in order to appease the collectors who are calling).

The most important thing to do in this situation is to keep hope alive. Your future is bright. Despite the financial route you’ve taken—there are always options, even if those financial decisions are hard to make. So fight any sense of discouragement, and remember how good life will be once you’re back on track.

It is important to weigh your options and determine what the right course of action is for your financial situation. CESI can help. To talk to one of our financial counselors, call CESI Solutions today at 1-866-635-7120.

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