How to Avoid Bankruptcy?
While most people do not think about avoiding bankruptcy, because they are employed or have cash reserves, if you are reading this blog post, you have come to this web site because you have questions about bankruptcy. One question I am often asked, is how to avoid bankruptcy. This question can arise in several scenarios.
Write Down All Your Spendings
The first comes from people who are working, have an income and are wondering if the relief of filing for bankruptcy may be worth the damage to their credit rating. These are often people who are able to make their bills, but have nothing left over. To them I say, you should do an experiment. See if you really are making your bills, or whether you are really putting yourself farther and farther behind. Start by getting a small notebook you can carry around with you and write down every penny you spend, even if it is on a candy bar or a quarter into a parking meter. Also include expenditures made with a credit card or debit card. At least once each week, review the listings and see if there is anything you can eliminate. Once you have eliminated some expenditures, see if you are now doing better. It has been found that when people write down everything they spend, they spend less. (This works for food, too.)
Compare your Credit Card Monthly Statements
Another thing to do is pick a day out of each month, preferable the beginning or end of the month. Add up your credit card balances on that day each month, and see if they are rising or going down. If they are rising, figure out why, maybe with the notebook method. If the balances are always going up, you are heading in the wrong direction. If you can make the balances go down each month, and you can pay your other bills, you can avoid bankruptcy, but remember, if you are paying only the minimum balances on your accounts, it could take over 10 years to be debt free.
If These Don’t Help
If after doing these things, you still cannot make ends meet, you should consider bankruptcy. Most bankruptcy lawyers will provide a consultation at no cost so you can see what you face and consider what you might want to do.
The other scenario is where someone has lost a job and is using credit cards and loans to make ends meet. For this person, the situation is much harder, and is complicated by not knowing when you will be able to get back to full earnings. If you do have a reasonable expectation of finding new work within a short time, it is also reasonable to keep using your credit cards to stay afloat. Once you do return to work, though, you should make use of the two methods mentioned above to track your financial well-being.
There are two things I would want you to consider, though, and while I know they are hard to follow, they should be kept in mind. First, in some situations, large uses of credit shortly before you file can cause problems once you do file for bankruptcy, although you should be able to get bankruptcy relief even if you have to use your credit to maintain a roof over your head and food on the table. If the charges before you file are at the grocery store, that should not be a problem. If they are at Best Buy for a 62 inch television, that would be.
The second warning is not to use your retirement benefits to ward off bankruptcy. If you file bankruptcy, all of your retirement benefits are safe and you can keep them, whether they are in pension plans, 401k plans, IRAs or any other type of retirement plan. I am greatly saddened when a client comes in who has taken loans from their pension plans which only stopped them from having to file bankruptcy for only a few months, when if they had come in earlier they could have kept everything that was in their plans.
Nobody wants to file for bankruptcy, but if you cannot ever seem to reduce the balances due on your credit cards, you might want to consider it rather than sending so much of your income off to the credit card banks each month. We would be happy to talk to you at a free consultation if you want more information on the bankruptcy process.