Bankruptcy is a financial tool that can be invaluable to those who have no other options, but it shouldn’t be your first recourse. Managing your money properly when times are good, and knowing how best to allocate it when times are bad can help you avoid bankruptcy and gain control of your debt.
When Times are Good
Managing your money during easier times can certainly soften the blow when things get hard. A savings account that includes even 3 months worth of income can mean the difference between weathering the storm and declaring bankruptcy. A little planning ahead will let you see your savings account grow every month.
Make a Budget and Stick to It
The key to running out of month before you run out of money is having a solid budget and sticking to it. When planning out your budget, be sure to allow for variable expenses like gas, groceries, and entertainment, along with your steady monthly bills. List savings accounts and other investment contributions as part of your monthly budget, and be sure to pay yourself a diligently as you would a creditor. If you find that your budget doesn’t allow for savings, make cutbacks to fix the problem. Savings should be a top priority.
Go Easy on Yourself
If you, like many of your peers, are not great with sticking to a budget, make things easier on yourself by taking some of the decision making out of your month-to-month spending. Set up automatic payments on your accounts to withdrawal on payday. Set up online banking and enroll in automatic bill pay programs. This will make sure your bills are paid before you ever see your money.
Protect Your Assets
While it seems like an unnecessary expense when you’re not using it, insurance is essential to helping you weather a financial crisis. Your home, belongings and vehicle should be insured at all times, and you need to carry health insurance for every member of your family to prevent catastrophic losses.
Monitor Your Credit
Mistakes or missed accounts can take a toll on your credit score, and this can cost you a lot of money in the form of higher interest rates. They can also make it difficult for you to qualify for credit when you need to, such as during a financial emergency. Closely monitor your credit report on a regular basis, and fix any issues as soon as they crop up.
When Times are Bad
It’s inevitable that life is going to throw you some lemons, but a little preparation will have you making lemonade in no time. A lot of the tools at your disposal through bankruptcy, such as debt reorganization and asset liquidation, can be employed before your bankruptcy to ease your financial burdens.
Cut Back on Spending
The first thing you need to do when trouble comes along is tighten up your belt. Reducing your spending habits now can buy you a lot of extra time to get your finances sorted out. Common household budget cuts include eating out, a second car payment, and cable. Take a good, hard look at your budget, and separate wants from needs to help you make a decision.
Reorganize Your Debt
When filing for a Chapter 13 bankruptcy, your debt will be restructured to make it more manageable to pay back. Some debt reorganization can be done ahead of time to help you avoid bankruptcy, but you have to act fast. Be sure to contact all of your creditors before you fall behind, so they can offer you some helpful options. You may be able to reduce interest rates and/or minimum payments on revolving credit accounts. Some creditors may even be willing to lower your principal balance if it helps you to stay on track. For big money trouble, refinancing your mortgage can lower your payment, and give you some cash to put toward other things.
Ask for Help
If you’ve hit a bump in the road, your family may be able to help out. Everyone has been in your shoes at some time, and your family may be more sympathetic to your situation than you think. Asking someone close to you for financial help can help you get the situation under control and begin moving forward again. To keep business from damaging your personal life, write up a loan contract when borrowing money from a family member. Include repayment terms and any interest that will accrue, and pay them back in a timely manner.
Liquidate Assets
When filing for a Chapter 7 bankruptcy, it’s not uncommon for the trustee to liquidate your assets in order to repay creditors. You can sometimes avoid bankruptcy and repay your creditors by liquidating assets on your own. Selling a home that has become unaffordable before you fall behind in payments is better than facing foreclosure. Trading in expensive vehicles for something more affordable can save you hundreds of dollars a month. When it comes right down to it, you don’t need a flat screen TV as much as you need to avoid filing for bankruptcy.
If you’ve done your best to manage your finances, but find that you’re still in need of help, consult with a Utah bankruptcy attorney to see what your options are. They may have some ideas about how to avoid bankruptcy that you haven’t tried yet, and they can guide you through the bankruptcy process should the need arise.