Recently on our legal forum a user asked, “I filed bankruptcy several years ago and had several of my large debts discharged. Due to an unfortunate event and a series of bad decisions, I have managed to generate another $35,000 in unsecured credit card debt and a personal loan of $20,000. I really don’t want to file Chapter 7 bankruptcy a second time. What are my options?”
Chapter 7 Bankruptcy overview
Chapter 7 bankruptcy may allow debtors to discharge certain unsecured debts such as credit card bills, medical debt and unsecured personal loans. Although it is a legal process to help debtors get a fresh financial start, as you probably know, there are certain drawbacks and long-term ramifications of filing.
For example, not only is it more difficult to get credit in the future, it can also affect your ability to rent an apartment, buy a home, or find certain types of employment. In some cases, it can also significantly lower your credit score, assuming it’s not already low. So, with that in mind, many debtors try to avoid filing bankruptcy a second time, and instead, try to find alternatives to solving their financial crisis.
Steps to avoiding a second bankruptcy
- Review your income and expenses.
Many Americans are used to living large, but in reality, you do not need a gym membership, a cell phone, a daily coffee, or even a second car. With this in mind, decreasing your monthly expenses is the first step to getting out of debt. Although you may have done this already, it’s surprising how many people file bankruptcy a second time without taking a hard look at their finances.
Note, you may need to get professional help or have an objective third-party review your spending.
- Find ways to increase your monthly income.
No one wants to work a second job, but this might be just what it takes to avoid filing bankruptcy a second time. In fact, you and your spouse may both need to increase your income for several months to climb out of debt.
If a second job is not an option, consider whether you have any assets you can sell. In some cases, you might be able to generate extra income by selling your assets on websites such as Craigslist or Ebay.
- Talk to family members and friends.
Although this can be a humbling experience, there are times when borrowing from friends and family members may be necessary to avoid a financial crisis. If you do decide to do this, however, make sure that you clarify it is a loan. You should also get everything in writing and agree to clear repayment terms. The last thing you want to do is ruin a relationship because of a misunderstanding about money.
- Consider getting a home equity loan or lower interest loan.
You did not mention the rates or interest you are paying on your two largest debts, but in some cases, you may be able to consolidate loans or take out another lower interest loan to reduce your overall debt payments. If you do decide to do this, however, make sure you understand the terms of your new loan.
Filing bankruptcy can be a good solution for some debtors, but filing multiple times is generally not a good idea. It’s usually better to proactively solve the problem.
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