How Do I Avoid Bankruptcy?

By George Stargell, Senior Editor

The best way to avoid bankruptcy is to avoid going into debt. However, if you're already headed toward bankruptcy, it's too late for that. The question then becomes, "How do I avoid bankruptcy in the face of mounting debt?"

That's a great question, even if it's much harder to answer. Just as each person's approach to personal finance can differ, so can their reasons for filing for bankruptcy. As a result, the following suggestions may not apply in your specific situation.

• Consolidate your debts. A licensed, qualified debt consolidation company can help you bring all your debts together and work with your creditors to lower your monthly bill payments. Typically, that means paying them off over a longer period of time, but doing so responsibly can help you raise your credit score and avoid bankruptcy at the same time.

A debt consolidator might also suggest the following:

• Reduce expenses. Every budget can be pared down. Start with entertainment and household expenses:
  • Eat only at home;
  • Watch videos instead of movies;
  • Switch to the cheapest cable package (or cancel it altogether);
  • Buy in bulk;
  • Shop with coupons; and
  • Eliminate unnecessary purchases (desserts, magazines, etc.).
• Sell off material goods. Take inventory of your possessions, and sell what you don't absolutely need on eBay or at a tag sale. Among other things, consider selling off:
  • Extra electronics (TVs, computers, DVD players, older cameras)
  • Unused athletic equipment (old golf clubs, workout equipment, table games)
  • Rarely-worn clothes (tuxedos, formal gowns, beachwear)
• Cut transportation costs. If it's feasible, sell your car, and take public transportation. Gas, car maintenance, and insurance costs typically run higher than bus or train passes. Vacation at home. Invite relatives over for special occasions (and share the food costs if you can).

If you're in a serious financial pinch, it won't be easy to avoid bankruptcy. If you're willing to make the necessary sacrifices, though, it may be possible. And if you end up declaring bankruptcy anyway, you can still apply the lessons you've learned in the future.