Everyone experiences financial highs and lows, but occasionally, things get really tough, and bankruptcy becomes the next and sometimes only option. Although it used to be considered a disgrace with lasting repercussions, today it is seen as more of a temporary hardship or adjustment. If you are possibly going to be declared bankrupt, there are some ways to prepare for the legal process.
1. Organize financial records.
Gather two or three years of tax records. Include the last year or so of pay stubs, along with evidence of other income sources. Do the same for expenses, including house payment or rent, utilities, taxes, insurance, repairs, maintenance, etc., as well as transportation costs. Additional expenses may include education, medical out-of-pocket bills, and other necessary costs. Prepare a brief summary or overview of income and expenses for easy reference. This information might be needed by the bankruptcy attorney who will handle proceedings.
2. Strategize possible funding sources.
Consider other sources of income to pay whatever bills you can afford until the proceedings are finalized. Each situation is unique, but determine if you can cash in your investment accounts, tap a savings account, or sell a valuable collection that is not particularly sentimental. You may be able to replace these items eventually, but at present you can reduce the outstanding debts at least in part.
3. Negotiate with creditors.
To offset the balances owed to creditors, contact them to see if they will take a percentage of the balance owed to close the account. This will still impact your credit rating, but it has a lesser effect. The attorney who is handling financial matters for you can advise you in this regard or contact creditors on you behalf.
4. Downsize when possible.
To reduce costs now and live more affordably going forward, consider downsizing to a cheaper apartment or smaller home. Buy a reliable used car instead of a new or late model one. Eat at home more to shave dining costs. Adjustments like these can help to lower the risk for future financial adversity.
5. Create a reasonable budget.
Your bankruptcy can be a fresh start to your financial goals. Create a new, reasonable budget that includes a savings plan to prevent monetary distress. Follow the budget as closely as possible to live within your means. Schedule a meeting with a financial adviser for assistance, if needed.
Going bankrupt is no one’s idea of fun, but it can be the start of a new way of life that will help you to live comfortably and responsibly. Make this a learning experience and avoid repeat mistakes or prepare for unexpected circumstances, and you may one day view it as a valuable turning point.