You’ve reached a point where your finances have taken all the hits they can handle. There is no money tree in the back yard or loan from a relative available to help get you back on your feet. Plain and simple, you really have to contemplate the bankruptcy process.
This is not going to be a pleasant time – or at least it appears that way from the onset. It’s important to understand a few things before you embark on this process so that it has the outcome you want: freedom from these money woes.
Your Contributing Factors
Start by asking yourself what caused your finances to reach this point? If you’re like most bankruptcy petitioners, it’s one of these situations:
- Unexpected illness. Someone got sick and in spite of having insurance, you were left with a pile of co-pays and non-covered medical expenses. (The trauma of dealing with illness by itself is enough to handle, but now you have this on top of it.)
- Credit Card Law Changes. When all that bad stuff happened with credit card interest rates, perhaps you were stuck smack dab in the middle of it. All it took was one late payment that was one day late just one time on a credit card and the next thing you knew, all your interest rates skyrocketed. As a result, your monthly minimum payments went from $200 to $1200 overnight. Who can recover from that?
- Unemployment. Times have changed and in a down economy, losing your job doesn’t mean a few weeks of no income: it means months or potentially years. Even if you get unemployment benefits, that amount won’t cover what you owe – especially if you were making a substantial salary.
One of the requirements in place as part of the bankruptcy process is education. You will be required by the Federal Bankruptcy Court to participate in “x” many hours of education. This is so that you can learn how to avoid the situation you find yourself now in. The education is very beneficial, even for the most experienced financial guru because there is always something that can be done different going forward.
Perhaps it’s having a larger savings account, buying used cars instead of new cars, or cutting back on unnecessary spending at the holidays. No matter the situation, you will have to find a way to live your life after all this debt is erased. (Remember: there will be no more credit cards or low-interest loans if you need a car loan or have to refinance your mortgage.)
A Tentative Post-Bankruptcy Plan
You’ll need to come up with a plan – even before you meet with an attorney. This plan allows you to create a picture (and budget) of what your life will look after the bankruptcy process. Consider these two elements:
- What is your total income now? Assume that you may not find a job for another year and you will need to live on what you have. Be honest in the fact that you may need to take a lower paying job after all this debt is erased just to hold you over until a “real” job can be found.
- What are the bare minimum expenses you must pay? Include the usual house, car, utilities, etc.. However, also factor in any medical condition(s) that might be ongoing for life and the costs for that continued care.
You’ll probably want to do create this scenario on a computer since there will be a lot of shuffling around of numbers. Create one list of where you are now, income and expenses wise, and then create a second list of the new amounts after the bankruptcy process. The numbers will speak for themselves.
Making the decision to consider the bankruptcy process is not really that hard. The hard part is admitting that you have either (a) let yourself down, and/or (b) that life has been unfair. While that may be true, dwelling on it doesn’t change where you are at this moment financially. Give bankruptcy serious consideration and complete the task above. Just the process of what “might be” may be enough to ease the pain of “what is.”
Next, we’ll talk about what’s involved in deciding if you’re eligible to consider bankruptcy in, “The Bankruptcy Process: Stage 2 – The Determination.”
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