Do you know there is a simple formula to avoid bankruptcy and stay afloat in your finances? Businesses, projects, and individuals can face liquidation as a result of huge debts.
In many cases, debts occur as a result of unplanned expenditure, poorly thought out financial dealings, or even unforeseen emergencies. When you are in such a situation, it can lead to depression and feelings of inadequacy. It can also be difficult to find a remedy once you are already in financially uncomfortable circumstances.
Due to the devastating consequences on victims of debt, naturally, the best course would be preventive measures. To that end, some evasive personal and business finance policies can avert just such a situation.
Ways to Avoid Bankruptcy
To escape huge debts and the indignity of filing for bankruptcy, you can just observe the following:
1. Plan your budget, and stick to it: Do you wish to avoid bankruptcy? One sure way out is to stick to a well-planned budget. This budget can be designed based on your weekly or monthly income. Endeavor to consider every household or business expense while making this budget. And this budget should consist of not just basic needs, but some wants, and savings as well. Excluding so-called “unnecessary” expenditure from this budget may turn out to be counterproductive, as you may begin to resent a too stringent plan. Just don’t overdo the wants.
2. Document your daily expenses: After you conclude a transaction, endeavor to put it down on an expense sheet. This documentation will enable you to track your spending and stay within your budget. Always include all expenses made for the day, including minor ones.
3. Stay away from deferred payments: Who has not been tempted by the buy now and pay later option? However, individuals looking to live debt free life should stick to stuff they can immediately afford. The credit illusion can quickly make you spend money you never knew you didn’t have.
4. Skip high-interest rates loan: Whenever the need to acquire a loan arises, seek for a lender with low-interest rates. If there are better alternatives like borrowing from a rich relative or friend, then embrace that option.
5. Rent an affordable apartment: Living in a world-class apartment while earning minimum wage or just a little better can transform you into a great debtor. If your housing expenses are above your income level, seek for cheaper housing more your income level.
6. Make provisions for emergencies: Emergency expenses are some of the major reasons why people fall into debt. Such expenditures usually occur unexpectedly and may assume a life or death magnitude. Still, emergency expenses can be avoided when you make a flexible provision for emergencies. These include insurance or an emergency fund. Never include the emergency fund with your regular planned budget. Emergencies can take any of the following forms:
- Medical expenses: You, a family member, or even close friends, may experience a medical condition that quickly rakes up huge bills. Emergency funds or the right insurance cover plays a significant role in such cases.
- Unplanned travel: A need might arise for sudden travel. It may occur for work-related reasons or to carry out an important personal obligation.
- Sudden damage in the house or interior facilities: Household facilities could develop unmanageable faults unexpectedly. It will require the service of a specialist to restore such a failure. Such services will warrant the unexpected expenditure.
- Job transfer: Your employer or company may decide to relocate you to some other branch in order to meet business goals. If you receive such summons unexpectedly, you’ll likely face huge financial challenges. But an emergency fund will save you a lot of stress.
- Your vehicle develops a fault: Your vehicle normally will require routine maintenance with time. But it might break down unexpectedly without a sign. Repairs will require a minor to major payout to effect.
7. Avoid bankruptcy by paying cash: Making your payment via credit cards could lead to greater expenses. Entering a shopping mall with a specific amount in cash will definitely limit your expenses to your budget. Credit cards will prompt more unplanned purchases like buying items that are not on your shopping list.
8. Don’t take a loan for unrealistic projects: Before you consider taking a loan to finance a particular project, know your goals. If you’re undertaking such a project for the first time, use your savings, or include the expenses in your budget. But if such a project is bigger than your earnings, don’t consider a loan as the next option. Obtain a loan only when you are very sure that the project will yield a positive result.
9. Use only one credit card: Never use more than one credit card at a time. This action will result in more expenses. One credit card will help limit your expenses. Basically, there will be no need for two credit cards because one card is enough to solve all your daily expenses.
10. Make budget adjustments when necessary: In the future, a need might arise. Situations such as childbirth justify a change in the current budget. Still, adjust your planned budget only when necessary.
How to Tackle Bankruptcy
A large debt load can force an individual or organization into declaring bankruptcy. If you cannot avoid bankruptcy, then the best option to escape debts is the proper filing of your bankruptcy. There are various types of bankruptcies that will help victims to overcome debt. They include:
- Chapter 7: This is the quickest and most common type of bankruptcy. It can be filed by individuals that run into debts. Chapter 7 is ideal as it halts creditors taking action against you until your assets have been liquidated to offset your debt.
- Chapter 9: This type of bankruptcy can be described as a municipal bankruptcy. Usually, when the government experiences bankruptcy, they usually deploy this type of bankruptcy to stay solvent.
- Chapter 11: Chapter 11 is basically meant for business organizations owing huge amounts in debt. Such businesses will continue to operate despite their huge debts. With the flexible payment plans provided by this type of bankruptcy, such businesses can repay their debts with time.
- Chapter 12: Specifically meant for individuals with a common interest, this type of bankruptcy allows the individuals involved to repay their debts with a flexible payment plan.
- Chapter 13: For individuals to qualify for this type of bankruptcy, they need to have a steady source of income. A specific amount of money will be required before you are able to file this type of bankruptcy.
- Chapter 15: This is the latest addition to the list of the different types of bankruptcy codes available today. It basically helps foreign debtors to clear their debts.
Nevertheless, the best bankruptcy options for individuals are Chapter 7, Chapter 12, and Chapter 13. To avoid bankruptcy, prevention is definitely better than any cure.