Filing for bankruptcy is never nice and is usually seen as the last resort for people who have been through several financial setbacks. If bankruptcy is looming over you, then you’ll no doubt be full of anxiety and fear. After all, it’s completely natural to feel this way when bankruptcy is a very real possibility. However, before the big ‘B word’ arrives, there are some steps you can follow to ultimately prevent it. Let’s start with step 1 and work from there.
Step 1: Consider an IVA (Individual Voluntary Arrangement)
An IVA is when you make an agreement with creditors who will then pay off your debts for you. After doing this, you’ll then need to pay them back in frequent instalments. Individual voluntary arrangements are great for people who are looking to regain some form of control and ultimately avoid bankruptcy.
To get an IVA, you usually have to be in debt of £10,000 or more. However, in some instances, you can get an IVA if you owe less money than this. It’s entirely dependent on your unique situation, so make sure to bear this in mind.
Remember, IVAs are not a ‘quick fix’. They’re incredibly helpful, but they usually take around five to six years to pay off.
Step 2: Renegotiate Payment Plans
In some cases, you’ll be able to successfully renegotiate payment plans with lenders. The reason for this is that they would much rather you pay back the money in smaller monthly instalments rather than not pay any of it at all because you’ve filed for bankruptcy.
Step 3: Raise Some Money
You might not believe it, but the likelihood is that you have lots of potential money laying around your home.
For example, you can easily sell old clothes and other belongings that you no longer need online. Apps like Vinted and eBay are great for this.
Have a thorough scout around your home to see what can be sold and what can be kept.
Step 4: Create a New Living Budget
If you’ve been living a lifestyle for several months (or even years) that you can’t afford or sustain, then it’s time to create yourself a new living budget.
By creating a budget, you will be able to allocate yourself a fixed amount of money to spend per week on life’s essentials, from groceries to transportation.
Step 5: Cancel Subscriptions
Nowadays, it’s very common to have multiple subscriptions at once.
According to TopCashBack, 57 percent of British people have three or more monthly subscriptions, which is a significant amount. Furthermore, the average UK household spends £41 a month on subscriptions. These subscriptions vary from Netflix to Apple Music. When combined into one sum of money, it’s considerably more expensive than you might realize.
For instance, including your smartphone bill, you might have outgoings of $100-200 per month just on subscriptions. This is valuable money that should be being used to pay off debts rather than gain access to multimedia entertainment.
Once you start to make cutbacks, you’ll find that it makes paying off your debts much easier.