Bankruptcy is not a thing that anyone wants to go through, but is a decision many people face. The good news is that there may be one last thing you can try to avoid bankruptcy. The steps below will show you how to divide up your monthly disposable income and try to set up a payment plan with your current creditors.
- The first step to avoid bankruptcy is to gather up all of your past due bills.
- Determine how far you are behind on all of those bills.
- Take your monthly net income and deduct your rent, food, gas, utilities, and current monthly bill payments.
- Take what is left of your income, after these deductions, and divide that number by the amount that is currently past due on your credit cards and loans. This should give you the number of months that it will take to pay off your past debt and avoid bankruptcy. For example, if you owe $20,000 and your disposable income is $1,000, it will take you 20 months to pay off your past due debt.
- Divide this money evenly between your creditors. For example, let's say you owe $10,000 to creditor A, $5,000 to creditor B, and $5,000 to creditor C. Your should give $500 per month to creditor A, $250 to credit B, and $250 to creditor C.
- Once you have determined how much you can give to each creditor, call them to set up a payment plan. Hopefully they will accept without any problems.
- If your creditors refuse to work out a payment plan directly with you, you may need to get some outside help from a non-profit credit consulting or debt consolidation agency. A credit counseling agency may be able to set up an affordable payment plan with your creditors and a debt consolidation agency may be able to buy your past debt from your creditors and roll it into one bill that you will pay directly to them.
It is important that you keep up with the schedule you have set with each creditor. It will be harder to avoid bankruptcy if you add to your current debt by moving into a more expensive place or receiving anymore credit cards or loans. You should try to cut back on some things and pay a little more to get the debt paid off quicker; it's definitely worth it if you can avoid bankruptcy. Things you can cut back on include cell phones, cable TV, switching your Internet plan, trading your vehicle in for a older model (preferably used) to lower or eliminate your payments, and staying away from places that will tempt you to shop. Another great idea is to take your lunch to work and stop going to Starbucks. Let's look at it this way: If you save $10 per day on lunch and $5 per day on coffee, that is over $300 per month (almost $4,000 per year) that you can use toward paying down your debt. Taking these steps is not fun, but may be necessary to avoid bankruptcy. Remember, bankruptcy is tough and will haunt you for a very long time. If you have the ability to cut back and make sacrifices now, it is better to do so before it is too late and bankruptcy is inevitable. If you have no disposable monthly income and are already living on basic necessities only (i.e. rent, food, utilities, gas, cheap automobile or no automobile at all), then bankruptcy may be your only option.