Bankrupt...Really?

I have to start by saying that we’ve never filed bankruptcy, never been anywhere near that situation. So I really don’t have first-hand knowledge of the whole process, and that may affect my views on bankruptcy. So there, disclaimer stated.

I guess I can see the need for bankruptcy if you had a business go belly-up and you found yourself $700,000 in debt with no assets to balance it out. But when I’ve seen bankruptcy notices in the paper, quite a few of them are for $150,000 or less. And I want to say, “You’re kidding me, right?”

Hopefully these people are using bankruptcy as a very last resort. You don’t want a bankruptcy on your record. You really don’t. If you are filing bankruptcy, PLEASE tell me that you have already done the following:

Tracking – You are currently tracking every single dollar that leaves your bank account. You know exactly where your money is going. The first month you do tracking is scary, because it gives you an honest picture of why you don’t have any money. But the second month is wonderful because you found where you were wasting money and don’t do those things anymore. You feel like you’ve gotten a raise!

Lifestyle – This isn’t optional. You have cut your lifestyle back to match your income. If you are broke, you really need to give up all the extras until you dig yourself out of your mess. It may take drastic measures – no cable, no Internet, eating beans and rice, no going out to eat, no adult beverages, nothing. You take care of your family’s basic needs first.

Budget – You have sat down at the beginning of the month and figured out where each dollar will go that month. As Dave says, you spend every dollar on paper on purpose BEFORE the month begins.

Negotiate – Call every company you owe money to and tell them, “I’m headed toward bankruptcy, but I don’t want to go there. I need help lowering my interest on the debt I owe you.” Or make them an offer to pay 50 cents on the dollar of your debt. They won’t like it, but chances are they will take it rather than the amount they will get if you file bankruptcy – which is ZERO.

Income Evaluation – If you have done the above (no, REALLY done the above) and are still not able to pay basic expenses and bills, obviously your income is the problem. You need to be doing paper routes, delivering pizzas, start your own side business...anything to bring in money.

So you’ve done the above and still don’t see a way out of the mess you’ve created. You’ve filed bankruptcy. PLEASE have an honest conversation with yourself and significant other as to what caused the bankruptcy so that you never, ever have to put yourself and your family through this again. And please learn how to handle money because they way you were doing it didn’t work so well the first time around.

Tip: Did you know that using a debt consolidation company is NOT a good thing to do? On your credit report, it looks just the same as filing bankruptcy. Steer clear.