Businesses aren’t the only entities that can go bankrupt in the US. American families are susceptible to bankruptcy as well. There were about 750,000 non-business (family and personal) bankruptcies in 2019 and about a million in 2013. That’s a lot of Americans filing for bankruptcy in one year. But what does filing for bankruptcy mean?
Essentially, families that can file for bankruptcy are those families that are earning way lower than the median state salary every year. These families must be in debt as well if they are to file for bankruptcy. If you don’t pass this particular test, it means that you cannot file for bankruptcy and that you have the necessary assets or income to pay your debts. In some cases, filing for bankruptcy can be a good thing.
Bankruptcy Isn’t a Bad Thing
People who file for bankruptcy aren’t out of money. In most cases, people who file for bankruptcy are only struggling to pay their debts. They are using bankruptcy as some sort of legal protection against creditors. If you are looking to file for bankruptcy, you should first consult an attorney specializing in family law. There is a big chance that a conflict may arise from your family once they know you are going bankrupt.
Explain this to your family: if you file for bankruptcy, creditors have to go through the legal process before taking anything from you. If there is something is deemed to be essential, then they can’t take that away from you. However, if you choose to not file for bankruptcy, creditors can take anything they want from you to pay your debts.
Additionally, people who file for bankruptcy don’t necessarily mean that they are bad at planning their financials. In most cases, it’s out of bad luck, especially right now when there is a pandemic. Many are looking for new solutions to solve this problem.
Managing your finances
This is the most obvious solution but the most overlooked one. Many families tend to not manage their finances because they feel that it’s not necessary, that it’s too much of a burden to do. However, once you start managing your finances, you’ll see that you actually have enough to pay your debts and then some.
The average family earns $68,000 every year. That’s a decent amount of money, considering that every family spends at least $63,000 annually. This already includes the average mortgage that a family takes ($10,000). Most likely than not, you’re suffering to pay your debts from consumer credit.
That’s right, the main reason why you’re getting into debt is by relying so much on your credit card to buy everything you want. If you start managing your finances, you’re going to see that you’re subscribed to services that you don’t even use every day and that you spend so much on credit for things you don’t even need. Managing your finances is the first step into being aware of a possible bankruptcy in your family. This will help you to make the necessary financial decisions to prevent it from happening.
Refinancing
If you’re at risk of bankruptcy due to debt, it’s time to consider your options. If you have already paid some of your loans and have a good credit score, it’s time to leverage that through refinancing.
You might think it’s risky to get a loan to pay debts, but families do this all the time. They choose to refinance old debts because they want to pay a more recent debt that isn’t negotiable. You see, refinancing can give you the chance to negotiate the terms of your loan. This means you can make your payments much lower but set at a longer period. This can give you a chance to pay your debts.
Sell Assets
If you don’t want to take a risk with a loan, then it’s time to proactively sell the assets you have right now. You can take them up for auction or just sell them to someone you know at a reasonable price.
This is to avoid creditors from taking what they want at a lowered price. If you know someone willing to buy your assets at a more reasonable price, then it’s better to sell them to them than let creditors claim them. You can then use the money from that to pay your debts. Sure, you can lose a decent amount of assets by doing this, but chances are, it’s less than what you’re going to lose once creditors claim your assets.
Bankruptcy is a scary thing for every family. However, through these simple ways, you can prevent it from happening. So start proactively working on improving your finances to prevent possible bankruptcy.
