Analyzing The Source Of Your Financial Trouble
by John G. Merna
Analyzing the true source of your financial stress prior to considering filing a bankruptcy, whether a Chapter 13 or a Chapter 7, is key to not only recovering quickly but maximizing the benefit that the bankruptcy filing can bring to you. Follow these three simple steps to be better prepared.
1Review Your Real Income
As I am very prone to say to my clients in the Virginia Beach and Newport News area of Virginia, “everything starts with income”. I have found many people have a mental block to doing a budget. The solution to overcoming this mental block is using a form. It is easier to just respond to the questions asked by filing in the blank. There are numerous income and expense forms on the internet. However, the bankruptcy petition’s Schedules I & J are very simple and straightforward. Step One – Calculate you total household takehome income. I highly recommend you to do not allow for overtime or unguaranteed bonuses.
Review Your Real Expenses
Step two is of course to list your household expenses. Where people make mistakes in this task is not calculating for “ghost” expenses or unexpected expenses. Ghost expenses are the $10 for MacDonalds or that impulse purchase that you make weekly or several times a week. The unexpected expenses included the trip to the mechanic, the home repair, the visit by the plumber, etc. When working out your budget you are only going to get your “real” expenses by going to your check book ledger and reviewing your bank statement for all the ATM or debit purchases. Add a “contingence” expense to your budget in the amount equal to the average monthly outlay for unexpected expenses.
Analyze the Real Income and Expenses
Reviewing your “real” budget is going to provide a number of insights. – Are you negative each month? If you have been relying on the overtime that has diminished or disappeared it will become very clear. Has your negative budget forced you to rely on credit cards and driven the balance to the max? Are “ghost” or unexpected expenses driving you negative (Tip: if ghost expenses are a problem, getting into the habit of writing down every expediture daily will assist you in gaining control and reduce these expenses assuming the are discretionary.)
What to do if your problem is a negative budget.
Bankruptcy only assists in wiping out unsecured debt. It does not assist with a “cash flow” problem. If the source of your financial problem is a negative cash flow you only have two options: get more income or get fewer expenses. This seems like an easy suggestion. However, for many with a growing family their expenses, i.e. cost of living, may be rising faster than the household income. Understanding this problem hopefully will allow you to make some hard decisions about what to do. Is that high mortgage payment on a house that is now upside-down no longer a good investment? Do you really need two expensive car payments? Is private school tuition really affordable for you? Can you really afford to continue to support your adult children?
Get some budget counseling.
There are numerous non-profit organizations that provide free budget counseling. Take advantage of them. Consumer Credit Counseling Services is a well respected organization with offices nationwide. They also have internet tools to assist in you understanding your budget options. Be careful not to fall for “cheap imitations”. Many website with similar sounding names are just referral sites to attorneys who have paid to advertise or to “for fee” companies. You can get this services for free. I hope this guide will assist you in better understanding your finances. John G. Merna, Esq.
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