Bankruptcy Loans: 10 steps to avoid bankruptcy

When implemented early, all the debt management solutions (debt snowballs, budgets, and long term money management)are workable enough to turn the tide, but won’t really help you if you are already on the brink of bankruptcy.

Here are ten tips to help you from slipping into a black hole...

Stop spending

Many people on the brink of bankruptcy never stop spending money until they finally run out of cash. If you are in the hole already, cut down on unnecessary expenses and even pare down needed expenses to the bone. Live on ramen and rice for a while. Don't even worry about setting up a budget; stop the bleeding by being a miser and stop spending.

Prioritise debts

You may be unable to service your outstanding loans or credit accounts in the near future, so sit down and prioritise the debts according to importance. Mortgage and car payments should be at the top of your list.

Sell assets

These may include cars, houses, stocks, and anything that can provide you with more solvency, so you can pay off those debts. If you aren’t able to settle your debts and instead declare bankruptcy, the creditors will step in and you'll lose whatever you have.

Negotiate new terms

Inform your creditors that you will have difficulty with your finances but you are still committed to paying off your debts.

Ask for help

Talk to each creditor again, and negotiate for lower interest rates or minimum installments. If you have outstanding loans, try to get them extended so you can lower monthly payments.

Negotiate settlements

Call each creditor again and try and get them to accept a settlement on your debt. You may find that skipping a few payments is all you need from some creditors, while others will insist on a settlement to be able to stave off bankruptcy.

Seek a consolidation loan

While not recommended, consolidation loans are a last ditch effort to stave off bankruptcy by getting all of your accounts current and reducing your overall interest rate to lower your monthly payment.

Seek credit counselling

Sometimes credit counselling services can drastically reduce interest payments or even suspend them in order to facilitate payback of the principal.

Default on low priority debts

Defaulting on one or two lower priority debts can free up some cash which you can use to pay off more important debts. However, this is a desperate move and will mar your credit record, but it can help you avoid bankruptcy. Call on any accounts you will default on and negotiate a settlement. If not, repay the debt later when you are more stable; you might have to deal with a proxy-debt collector by then, though.

Seek an ITSA agreement

The Insolvency and Trustee Service Australia is the government entity that assists in handling personal bankruptcy proceedings in Australia. They provide three options for sorting out unmanageable debt, and two of them, a Debt Agreement and Personal Insolvency Agreement, stop short of bankruptcy.

Check out their website for more info on these options as well as links to agencies that can assist you and help you avoid bankruptcy.

These bail-out steps may aid you short-term, but most will end up prolonging your overall debt situation. However, they give you more room and more time to keep solvent, which is really your only goal when on the brink.

Once your cash flow is more stable, you can manage your debt better. Bankruptcy is a place where you don't want to end up unless you have no choice.

In most cases you can avoid bankruptcy if you work at it. It is imperative that you call and negotiate with your creditors if you believe that you will be creeping towards insolvency.

Because of the current financial climate and rates of default, more lenders are willing to help you pay them back. It will be a long and uphill climb out of the debt hole but it is the best thing you can do for your own financial welfare.