Many people spend sleepless nights debating over whether or not it’s the right time to file bankruptcy. While there’s usually no “perfect” time, at this time of year when we’re all rushing to do our taxes, it’s a good time to evaluate our personal income and debt.
As a general rule, start by evaluating your budget: what is your monthly income? What are your monthly expenses? In my many years of experience, this is the single most difficult thing for the average person to do, particularly if you suspect that your expenses are more than your income. It is also the most effective tool for beginning to analyze your financial situation. It’s easy to go from week to week, month to month, just paying the bills as they come in, without giving a thought to cash inflow and outflow.
You don’t need fancy software to analyze your budget, but there are many programs out there that are very helpful if you are a “visual” learner (like me). With software, you can also save the budget, revise it, and do projections. But, a pen and paper work, too, for looking at your basic budget.
If expenses exceed income, it’s time to dig deeper to see what changes you can make to reduce the “red ink” at the end of the month. If you can balance the budget by reducing those trips to Dunkin’s, or the daily lunches out, then you’re probably OK. However, if you can’t see any areas where you can reasonable reduce expenses, and you don’t have a feasible way to earn more income, then it’s time to dig deeper. Let’s look at the 2 most common types of debt which lead to filing bankruptcy.
CREDIT CARD DEBT:
How much credit card debt do you have? Are you barely making the minimum monthly payments? Are you using credit cards to pay for groceries and medical bills? These are usually signs that you might be in financial trouble. Try this-look at your budget again, but eliminate all of the credit card debt payments. Are you “in the black”? If so, you may want to consider filing for Chapter 7 bankruptcy to clear those debts, and get a fresh start.
Medical bills are another common source of debt, which can quickly become overwhelming, even if you have health insurance. When you have a medical emergency, meeting the deductible, and paying for copays and uninsured treatment can put you thousands of dollars in debt. If your medical providers are willing to negotiate monthly payments with you, and you can make those payments consistently without going “into the red” every month, then you are probably on the right track. If you are struggling to keep up with the medical bills, then Chapter 7 may be an option for you.
Next time, we’ll talk about how Chapter 7 bankruptcy works, and who is eligible to file.