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The word 'bankrupt' refers to a person or business that is financially ruined. Both people and companies can rebound from being bankrupt, but their chances for success are limited if they don't take time to investigate what caused them to become bankrupt in the first place.

Today, there is an abundance of bankrupt people and businesses. From automakers and lending institutions, to the corner grocer and your neighbors. Everywhere you turn there is news of gloom and doom, a failing economy, and unemployed people

Believe it or not, there are many ways to avoid going bankrupt. If you are having problems making ends meet, it is time to sit down and review your financial situation. This task can be challenging for most people, but it is an absolute necessity if you ever want to rise above your current situation.

Start by organizing all your bills and living expenses. These include your rent or mortgage payment, utilities (electricity, gas, water, sewer, trash, phone, cable), automobile loan, insurance (life, medical, car, home), credit card bills, groceries, daycare, etc.

Next, create a list of your household income. Include earned wages, commissions, child support, alimony, and money earned from any other endeavor. This might include eBay earnings, or extra money earned from watching your neighbor's child after school, or baked good you sell to the local merchants. Whatever you do to earn money on a regular basis should be included.

Now, add up all your expenses, than add up all your income. If your income is less than expenses, you have a problem. If you aren't able to increase your income, the only option you have is to decrease your expenses.

If you have become delinquent with your mortgage and facing the possibility of foreclosure, chances are your first priority is to figure out how to become current. Many people choose to file bankruptcy to stop foreclosure. While it is true bankruptcy can halt the foreclosure process, this may not be the best option to save your home.

Most people do not realize that the new bankruptcy laws enacted in 2005 have made filing bankruptcy considerably more difficult. The Bankruptcy Abuse Prevention and Consumer Protection Act requires debtors to repay a portion of their debts through a Chapter 13 repayment plan.

Chapter 13 payments must be paid to the bankruptcy Trustee, who then distributes payments to creditors. If the debtor is unable to adhere to the repayment plan, they fail out of bankruptcy and lose all protection from the court. Creditors can then reinstate all previous collection actions, including foreclosure.

Instead of filing bankruptcy, financial experts suggest debtors should engage in bankruptcy alternatives such as credit counseling, debt consolidation or debt settlement.

Credit counseling can help debtor's regain control of their financial situation by developing a workable budget and paying off outstanding debts.

Debt consolidation is usually reserved for homeowners able to obtain a debt consolidation loan. With today's turbulent economy and banking credit crisis, obtaining debt consolidation loans has become increasingly difficult. However, it is not impossible.

Debt settlement involves negotiating with creditors to reduce outstanding debts. Typically, debtors enlist the services of a professional debt settlement company to negotiate with their creditors. Debt settlement companies charge an upfront fee and require debtors to make monthly payments until all debts are paid in full.

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Published on February 17, 2009 at 03:48 AM

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