Sometimes financial problems can reach such a crisis point that bankruptcy is the only option. However, before entering bankruptcy, you need to understand the implications and ensure you have made an honest assessment of your financial position. Bankruptcy can have implications for your home, income, employment status and ability to travel overseas, just to name just a few. Here are the top 7 tips to consider prior to making the decision.
Face the problem head on
Too many people have a sense that things are spiralling out of control without ever fully assessing the position. Not facing the problem means not asking for help, watching unopened mail pile up and switching off the phone – this lack of action/recognition only serves to deepen the unease.
Get an accurate picture
The first step is to conduct an audit of your financial position. This is not as daunting as it may seem. It simply means making four lists:
- Your monthly/weekly income
- Your monthly/weekly expenses
- What assets you own
- How much you owe
In complex situations, it may help to engage the help of a professional but there are simple and freely available tools nowadays to assist. Most if not all banks now offer an online budget tracker via their internet banking. You simply assign predesignated categories to your income and expenditure and the tool can provide reports detailing the monthly shortfall. This can be done looking back for at least six months to properly understand the picture.
Writing down what you own and owe can allow you to plan a course of action and also yield surprising results – while many people deny their debt position it is not unheard of for people under financial stress to uncover hidden assets they had overlooked or not known they had.
What can start out looking like a hopeless situation can be aided dramatically by a little old-fashioned belt-tightening. Do you really need that $5 latte every morning or would a jar of instant in the office do? Taking this mentality leads down a path of discovery that can produce dramatic savings you thought were not possible. As Edmund Burke said, “Nobody made a greater mistake than he who did nothing because he could only do a little”. That first seemingly inconsequential cost-cut can be the snowflake that kick-starts the avalanche.
Budgeting helps with cost-cutting. Plan your expenditure, leaving nothing to chance. A plan provides a target, a target provides motivation, and motivation provides the determination to succeed. A budget can be as complex or as simple as you like. A professional can help if required but most people can put a budget together if they turn their mind to it.
Examine your debts
You now have an accurate picture of your debts. From here you should make sure you understand the level of interest % you are paying and the $ amount of the monthly repayment. Be they credit card, term loans from a bank or other funding sources their might be a better option. The credit card industry is competitive. Look to see if you can switch to a cheaper provider or one with an interest free period on transfers. Never underestimate the value of a cheaper interest rate. Small differences in percentage rates make big differences to the life and manageability of a loan. One point to note – think long and hard before accepting loans from friends and family. It may seem too good to be true but you put at risk long held relationships if you cannot meet the terms.
Talk to creditors
Talking to creditors can help more than you think. Turning off the phone and keeping out of sight might be an easy option in the short run but in the long run it never helps. Creditors can be surprisingly understanding when you take a proactive approach and honestly tell them the position. Some will provide repayment plans, other a payment holiday and the conversation can also help avoid expensive legal bills. Yes, some creditors will react negatively but on balance an upfront discussion is the helpful path. With the backing of creditors the seemingly bleakest of positions can be somewhat brighter.
Make an informed decision about bankruptcy.
It’s never too early to talk to the experts and know all your options before you make the final decision to file for bankruptcy. A conversation with a member of the Insolve panel can not only take you through the difficult conversation, but also provide you with the right advice that’s best suited for your situation.