The Cost Of Bankruptcy & How To Avoid It Altogether
The Cost Of Bankruptcy & How To Avoid It Altogether
The cost of declaring bankruptcy goes far beyond the minimal fees paid to an attorney. The $350-$750 that they charge is only the beginning of the true financial costs. Instead of figuring out the actual costs, why not avoid it totally.
You see, declaring personal bankruptcy can be avoided with some advance planning even if disaster strikes.
Everyone hits a difficult time financially at some stage or another in life. Right now in 2010 with the global economic downturn, there are even more people than usual struggling financially. The bad economy has hit even financially stable people very hard in many cases, and thousands of people that were probably getting ahead just fine are now in a huge financial mess where declaring personal bankruptcy is staring them right in the face.
How can you prevent this from happening to you?
Right now, I think the key to financial stability is to proceed with caution, and only expose yourself to limited, controlled and well evaluated financial risk. Prudence should be the word of the day.
Regardless of whether the economy is strong or not, there are some fundamental common sense rules that should always be followed so that you hopefully never land up out of financial control and declaring bankruptcy. You should be making sure in today's recession that you apply these rules even more rigorously than you would have, perhaps five years ago.
Never live beyond your own comfortable affordability level, regardless of what access you have to credit. Credit that you can't pay back is the enemy!
Understand that an intelligent borrowing strategy can definitely be part of the bigger picture. But never buy liabilities with borrowed money. So throw away all those credit cards and pay off your loans that you may have taken out to buy things that lose value. Consumer goods usually don't grow in value, and you can never make your money back on them. Yes, this includes cars!
Don't misunderstand the difference between an asset and a liability. Some people think a motor car is an asset, when it is actually a liability, since it loses its worth from the moment it is driven out the sales room until it lands up as scrap somewhere.
Learn about the compounding effect of interest payments. You can use the principles of compounding very effectively if you are clever about it. By the same token, if you don't apply common sense you can spiral out of control into deep debt as a result of the exact same principle of compound interest.
Be very careful when borrowing money that is backed by collateral (such as mortgage bonds). You must be absolutely sure that you have a long term AND a short term strategy in place as to how you are going to service the debt repayments. If you don't tread warily here, you could end up with debt you can't afford, losing your collateral (often your home) in the process.
Leave enough liquid cash available to be able to cover your basic needs and sit out a financial crisis for at least six months (and in this economy even up to nine months). I know this is a tall order, but if you do this, you will one day be eternally thankful you did. It gives you enough time to make a drastic and rapid plan if you land up without an income to service your debts.
I know that these bankruptcy avoidance principles sound rather conservative and not a lot of fun, but honestly, you really won't find it difficult to achieve this level of financial security if you start small but chip away at it diligently. Figure this as a way around the cost of bankruptcy.
So what happens if you are already to the brink and need a solution immediately to stop your impending bankruptcy? Then the only logical solution is to use asset protection against your lenders. That's right, beat the banks at their own game. I turn individuals on to this system all day long and will do the same for you.
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