I am doing a chapter by chapter review of the book Personal Bankruptcy Laws For Dummies by James P. Caher and John M. Caher. Today I review Chapter 2.
Chapter 2 is all about not making matters worse. If you’re considering bankruptcy, odds are that things are pretty bad already. You might be sweating even the minimum payments on your credit cards, neglecting medical and dental care because you can’t pay the doctor’s bill, or waking up in the middle of the night worrying about money.
But get this—you’re not alone. There are tons of Americans who are going through, or who have gone through, the exact same thing. The important thing to keep in mind is that there’s a way out. Although personal bankruptcy can seem pretty devastating, you need to maintain a positive, can-do attitude and focus on getting out of the hole. It’s time to take a step back and assess the situation through clear eyes—figure out what you own, what you owe, and what you can do in the short term to prevent further damages.
Preventing Further Damage Now
It’s time to be careful, not take even larger risks. Until you meet with a bankruptcy lawyer and know just where you stand, don’t take any big steps that have a large financial impact. This includes:
- Borrowing any more money
- Making any payments on debts to friends, business partners, or relatives
- Getting married—or divorced
- Ignoring lawsuits
- Moving out of your homestead or entering into a contract to sell it
- Voluntarily leaving your job
Credit Card Arbitration Proceedings
These are important—don’t ignore them! Some credit-card companies are part of a National Arbitration Forum, which is basically a way for creditors to get stealth judgments against consumers without going through a real court with a real judge. It starts with a legalistic notice that arbitration proceedings have been started against you, and that if you do not respond, an award may be turned into a real court judgment against you.
They’re counting on you not to respond, which is of course how they screw folks over. If you get one of these notices, don’t ignore it if you have any reason to question the amount of the claim against you.
Controlling Your Spending
The first step to controlling your spending is keeping track of all your expenditures. Caher and Caher suggest carrying around a little notebook so you can record every expenditure you make for a month. Not only will this let you prepare a realistic budge, it’ll also make small spending such a hassle that you’ll be motivated to spend less.
Next, figure out where you can eliminate unnecessary expenditures. Here are a few things to focus on:
- Credit-card payments: Bankruptcy might be the best solution if a big chunk of your monthly income is going to credit-card bills.
- Daily dribbles: It’s easy to develop habits of unnecessary spending such as that cup of coffee in the morning, or the afternoon snack from the vending machine. It all adds up in the long run.
- Extravagances: Think twice before that expensive sushi dinner or the pay-for-view TV show. It’s helpful to calculate how many work hours it took to pay for each luxury.
- Impulse purchases: Many people buy tons of stuff that they never end up using—just head to your attic or your garage if you want proof. Figure out what you really need and avoid the rest.
- Overwhelming mortgage payments: the home might not be worth keeping if most of your monthly payment is going toward the interest.
- Killer car payments: Consider selling your expensive new car and buying something more affordable if you’re struggling to maintain payments.
- If you have to buy things, visit a coupon website such as Coupon Code Raja.
What You Owe and What You Own
Document your assets—and how much you owe on debts. Figuring out what you have helps to create a basis for figuring out what property you may lose by filing bankruptcy, lets you know if avoiding bankruptcy by selling things is a viable option, and demonstrates how little you have to show for thousands of dollars of credit-card debt.
Even if it’s painful, knowing the total amount of what you owe is critical. Creditors want you to think in terms of monthly payments instead of considering the total amount—it’s easier to buy that new car when you only consider the $400 monthly payment instead of the $25,000 total.