While bankruptcy may be the last resort when your finances go bust, there are just as many ways to avoid the same. Here’s a take on what all you can do to avoid bankruptcy, both personal and business. While most of them apply to both kinds of bankruptcy, some are specific to avoiding business bankruptcy. You will know as you skim through.
1. Sound financial planning: Bankruptcy is not an overnight phenomenon. It can’t be that one day it’s all hunky dory and the next day you go broke. Avoiding bankruptcy starts with something as basic as prudent financial planning. Healthy financial practices from day one will go a long way in helping you achieve the same. Have a clear picture of your target, your means and appropriate allocation of your resources to maximize returns.
2. Try debt consolidation, reduction: This should be considered if it seems difficult to level out your debts with your income or when multiple creditors are charging you high rates of interest. Debt consolidation involves clearing away debts by taking up a single, low-interest loan. This way, you are required to make a single payment a month, deal with a single creditor and pay less in interest.
Also, hiring non-profit debt management companies can help avoid bankruptcy. They will negotiate with your creditors on your behalf. Once terms and conditions are agreed upon, payment will be made to the lenders through your debt management company. You will have to park your funds with the company, from where they will be handed over to your creditors upon attaining a sizable proportion.
3. Avoiding debt: Bankruptcy essentially occurs when your debt overshoots your resources. In that case, minimizing debt is the only way to get a grip on your resources. It is better to sell off minor assets in lieu of a debt pile on, especially when your finances are real weak. However, if loaning is the only feasible option, try seeking unsecured debts as opposed to secured ones. The latter give creditors more autonomy over the former.
4. Finding investors: It’s time to look for investors if your attempts at negotiating your business debt fall flat. If the foundation is strong, potential investors might see you as a credible asset. Banks may also chip in with loans if they have faith in your enterprise. This, once again reaffirms the importance of sound financial planning. An influx of money may help revive your ailing business.
5. Laying off: Getting pragmatic, shelving off some of your workers is one of the first steps towards trimming costs and hence, avoid bankruptcy. You can always rehire them when the circumstances look up.
6. Rope in a management specialist: While it may seem an additional burden at the outset, hiring a professional to sail you through turbulent times might just be the key to pull you back from the brink of bankruptcy.
7. Restructuring debt: Get your creditors to the negotiating table and work towards overhauling your debt in a way that it results into a win-win situation for all. You may get a tenure extension or a plain reduction in debt. Bear in mind that at the end of the day, your going bankrupt is the last thing your creditors want. Capitalize on that and chart out your plan to prevent bankruptcy.
8. Don’t evade payroll taxes: Be regular with your payroll taxes. You can land in trouble with the Internal Revenue Service (IRS) holding you liable for the taxes withheld from your employee pay checks. Penalties will be on the way. In case you apply for bankruptcy, this debt will not be done away with.
9. Lie low, do nothing: Appalled though you might be, this may prove to be your final attempt to nudge bankruptcy when you don’t have a permanent source of income or any concrete asset to show. In such a condition, you can avail yourself of a judgment proof, a condition wherein your creditors can take you to court but shall not be able to extract anything out. The overdue debts are written off your records in seven years. However, they can ask for their dues in case your finances improve over time.
Having said that, bankruptcy though best avoided, is not the end of the world. There are ways out there. Don’t give up.