8 Ways to Stay Out of Bankruptcy

I am a bankruptcy attorney. From my point of view here are the things that most often push people into bankruptcy.

1)  Never ever co-sign a loan for a friend. Some of the most tragic bankruptcies occur when the client has otherwise sterling credit but his “friend” doesn’t pay.

2)  Avoid ruinous debts with ridiculous interest rates. These include payday loans, used car loans, even mortgages with 30, 90 or even 200% annual interest, or more. They are roads to disaster.

3)  Always, pay more than the minimum on credit card debt. If you can only afford the minimum payment than you are carrying too much debt. The interest will eat you up.

4)  Carry health insurance.

5)  Student loans are not free money.  Be very careful with student loans. They are non-dischargeable debts in a bankruptcy.

6)  What follows is very hard advice.  People hate to hear it, but, if your economic circumstances change adjust. If through divorce or unemployment you can’t afford your lifestyle — downsize.

7)  Contact your mortgage company and apply for a home loan modification. Then, think twice before signing it. You are often pushing costs to the end of the loan where you will eventually have to pay them back.  But on the other hand you may be lowering your interest rate. So consider the terms and your alternatives, like selling and moving somewhere cheaper.

8)  Don’t refinance your home or take money out of a 401K to pay unsecured debts.