If you are reading this I am going to make an assumption that your finances are not in great shape. It’s not hard to avoid bankruptcy if you are maxing out your 401k and have thousands in the bank. I’m going to assume that you are trying to get your financial picture back in order…..but that it doesn’t look great at this moment. As a bankruptcy attorney, some people may think it is odd that I am writing a blog about how to put myself out of business. I don’t mind one bit. If bankruptcy is avoidable it should be avoided, so in this blog I’ll give a few points regarding what needs to happen to avoid both Chapter 7 and Chapter 13 altogether. Be prepared. I did not say that it would be easy.
If you find yourself in a financial mess start at the beginning. At the beginning comes income. In my opinion having a problem with little or no income is a much larger problem than a debt problem. There are, after all, a few basic necessities of life that each person needs that cost money. I’m referring to housing, food (actual groceries), minimal clothing, etc. Ask yourself if you could earn more income. If you can answer no to any of the following questions you can bring more money into your household:
1. Do you have a second job?
2. Does your wife/husband have a second job?
3. Do any of your children who are at least 16 years old have a part-time job?
4. Do you charge any adult children or other relatives living with for rent/utilities at least $500.00 per month?
5. Do you require any adult children or other relatives living with you to buy their own food?
Seriously. If you answered no to any of these questions you can bring more money into your house. It’s not fun to work a second job, but it can easily add $800 to $1,600.00 to your monthly household budget each month.
Assuming that everyone in your household is working their tails off and you have maximized your household income it is time to examine your monthly living expenses. Here are a few areas that I often see killing people’s budgets that you can change if your number 1 priority is to avoid bankruptcy.
1. Cancel all but one cell phone if you aren’t under contract. If you are under contract do this as soon as your contract lapses;
2. Cancel cable television. If you have a smartphone also cancel the internet. Order a digital antenna from amazon and subscribe to netflix.
3. Look back at your last 3 bank statements. How much money did you spend eating out or on stupid, minimal convenience purchase at a gas station or coffee shop? The number may shock you. Stop it. Cut up your debit card if you need to so that you aren’t tempted to make these swipes.
4. If your children are in extracurricular activities that you have to pay for and/or spend your time (you will be working your second job) and gas money driving them around town for explain to them that you can no longer afford this. Tell them that they can still play the sport in the back yard or at the park, but you can’t afford the team until your family gets back on its feet. It’s important that all members of the family realize it is going to be a lean time.
5. Cut WAY back on birthday/christmas or any other gifts. RSVP no to other children’s birthday parties, set a limit per person for your family at Christmas and make sure everyone knows that limit ahead of time. Spend your holiday together drinking apple cider and singing carols instead of spending money you don’t have. Only buy christmas presents for young children. Consider eliminating birthday presents altogether for your family. Instead, bake a special dessert of that person’s choice for his or her birthday.
6. Inventory your clothing. Do you really need to buy more? Ask yourself before you buy and “stuff” why you are making this purchase. Unless you really need this thing you are just making it financially more difficult for yourself to avoid filing bankruptcy.
7. You cannot afford to help children pay for college right now. Sit them down and explain the situation. Help them research grants and scholarships. Talk to them about the benefits of working their way through college. Lastly, consider that they take student loans. DO NOT CO-SIGN FOR THE STUDENT LOANS.
Finally, work out a plan to attack your debt. I recommend the snowball method that I believe was developed by Dave Ramsey. Google it and you will find plenty of examples of how to do this. Basically it means beginning with your smallest debt and paying extra on it until all it is paid off. You then take the amount you were paying on that debt and add it to your second smallest debt until that is paid off and so on. In my experience having a plan to attack debt is rarely a problem. Most people with debt issues do little else than think about how they can pay it. The shortcomings are often making as much income as possible, cutting expenses and executing the plan.
Do these suggestions sound like fun? No. Of course not. They are not fun. They are not designed to be fun. They are designed to help you avoid bankruptcy if that is your primary goal. I have seen couples dig themselves out of 6-figure debt. It can be done. It is painful and it takes time, but it can be done. If your primary goal is to avoid bankruptcy take a long hard look at these suggestions and good luck to you.
Halcomb Singler, LLP, is a debt relief agency. It helps people file for bankruptcy under the bankruptcy code. No attorney-client relationship with the firm of Halcomb Singler, LLP, is created through this blog. Also, please note that Erika Singler is an attorney licensed in Indiana and does not seek to practice law in any jurisdiction in which they are not properly authorized to do so. The information contained in this blog is general in nature and should not be relied upon for the circumstances of any individual(s) or businesses.