Downriver Chapter 7 bankruptcy filers often ask how they could have avoided filing for bankruptcy.
While personal bankruptcy can help debtors in Wayne County, if you can avoid bankruptcy altogether, that is usually the best choice. Learn the warning signs of a looming bankruptcy, and be sure to contact one of the top bankruptcy attorneys in Wayne County if you need to file.
Bankruptcy Warning Sign: You Consistently Spend More Than You Earn
This is number one for a reason because it is the most frequent warning signs that could lead to bankruptcy. Many Downriver residents are forced to file bankruptcy due to an uninsured or underinsured medical emergency, divorce, or job loss. Others simply mismanage their money on a daily basis.
If you think you may be in the latter category, sit down and list all of your monthly expenses, using your bank account, your credit card statements, and your bills to find each and every expense, and add them all up. Does the total exceed your monthly earnings?
If it does, you have two options: learn to manage your money better or make more money.
Perhaps you only need an extra $150 a month to make things work. Put that on a credit card at 18% interest each month, and in only a couple of years, you have a revolving balance of over $4,000. How are you going to pay that off if you still don’t have enough money for your monthly expenses?
Think of ways you can make an extra $150 a month. Is there overtime available at work? Can you walk an elderly neighbor’s dog, or mow their lawn? Can you monetize a hobby, for example, selling crochet blankets or custom birdhouses?
If that does not appeal to you or is not practical, where can you cut expenses? How about subscribing to a less expensive cable/internet or cell phone plan? Can you turn the temperature down in the winter to save on heating costs, and the temperature up in the summer to save on AC? Can you get your hair cut or nails done once a month rather than twice?
Either trim your expenses, make more money, or do some combination of both. If you do not take action now, you will end up with credit card balances that you cannot hope to pay, forcing you into bankruptcy.
Bankruptcy Warning Sign: You Use Credit Cards to Cover Emergencies
Again with the credit cards. They are useful, however, due to high-interest rates it is not prudent to maintain a revolving balance.
If you’ve trimmed your expenses or found a bit of additional income, first, pay off your credit cards in full. Next, start an emergency savings account. Even saving just $50 a month will put you in a good position should an emergency arise.
Let’s say a year from now you have an emergency car repair costing $500. You will be without your car for two days, costing you $85 for a rental car. The total cost of this emergency: $585. Lucky for you, you’ve been saving $50 a month since reading this article, and you have $650.32 saved ($600 you deposited plus $50.32 in interest at 0.1%, good job!). You simply withdraw $585, rent a car, have your car fixed, and begin saving again. You are in the black with a savings account balance of $65.32.
What if you did not start your emergency savings? You would charge the car repair and rental to a credit card. Instead of paying cash and then commencing savings again, you would have to pay off that balance, which is accruing interest at 18%. Paying $50 a month to the credit card company (rather than saving it!), it will take you thirteen months to pay off that balance and you will have paid $57 in interest. That may not sound like much, however, that’s money you are giving away rather than saving for yourself.
- Scenario 1: you pay cash to deal with the emergency and simply commence saving for the next emergency, still in the black.
- Scenario 2: you charge the emergency to your credit card, pay off the credit card over 13 months rather than saving, give away another $57, and have no savings to rely on should another emergency arise in the meantime. All the while you are in the red.
Which scenario would you rather be in? Granted, paying off $585 might not seem like the direst of circumstances, however, what happens if another emergency arises? You charge the cost of that. And so it goes until you cannot afford to make the minimum monthly credit card payment and you realize you must file bankruptcy.
Start your emergency savings account today. Or, you may be forced to file bankruptcy.
Bankruptcy Warning Sign: You Put Off Necessary Payments Due To Lack of Funds
If you find yourself having to delay essential expenditures such as these:
- Dental work or cleaning
- New eyeglasses
- Prescription refill
- New roof
- Fixing a plumbing leak
- Car tune-up, oil change, or periodic maintenance
You are at risk of more harm than if you make the expenditure. Not having the funds on hand to pay for this sort of thing is a sign you are spending too much, need to earn more, or not saving enough.
For example, the lack of regular dental care not only leads to dental problems but allows bacteria to grow that has been known to cause heart damage.
If you don’t wear eyeglasses with your updated prescription lenses, you are at risk of injuring yourself or others or property because you cannot see as well as you should.
If you do not pay to refill your prescription medication, any condition you are being treated for goes untreated. Not taking your high blood pressure medication? That can lead to a heart attack. Not taking your insulin? Diabetes causes myriad other health issues if untreated.
If you do not install that new roof or fix that plumbing leak, water will damage your largest investment, your home. Similarly, if you do not maintain your car as needed, you risk damage to your second largest investment and also getting stranded somewhere.
You must maintain your home, your car, and your good health. If you can spend less or earn more, you will be able to fund these necessary expenditures. But if instead, you fund them with credit, you risk having to file bankruptcy if you cannot afford to make the monthly payments.
Bankruptcy Warning Sign: You Have No Extra Money For Fun
Money has one purpose: to maintain you and fund your lifestyle. Think about your current lifestyle. Are you able to spend money on social activities, your hobbies, and vacations or travel? If you have no discretionary income to have fun with, that is a sign you are overspending elsewhere or under-earning. And if you do go on vacation or buy that used convertible, are you charging that? How are you going to pay that off?
Cutting monthly expenses where you can, finding ways to earn a bit more, and establishing an emergency savings account will help you avoid wasting money on credit card interest. You can use the money you would have paid the credit card company for fun instead!
Bankruptcy Warning Sign: You Are Frequently Worried or Stressed Over Money
So many of us rate finances as the number one most stressful thing in our lives. Chronic stress can cause or exacerbate many serious health problems, such as:
- Heart disease
- High blood pressure
- Abnormal heart rhythms
- Heart attacks
- Stroke
- Mental health problems such as depression, anxiety, and personality disorders.
Not to mention that chronic stress has a significant negative impact on our quality of life. Take control of your finances using the tips in this article, and you will be taking better care of your physical and emotional well-being as well. If it is too late and you have debt you cannot hope to repay, it may be time to talk with a bankruptcy attorney.
If you’re concerned about these warning signs that could lead to bankruptcy, it’s not too late. Filing bankruptcy will get your unsecured debt discharged. Although your credit score will take a hit, you will get a fresh financial start.