smart spending
Bankruptcy do's and don'ts in 2009

There are many things a person can do in the new year to have a smooth and positive bankruptcy experience. Yes, I know people might be upset that I am hoping people file bankruptcy, but I have nothing to be defensive about. Our society does not benefit from having someone who cannot pay his or her bills and has to run from creditors. Getting a fresh start benefits all of us and is much better than having someone informally bankrupt and unable to access credit again.

Do ...

1. Commit yourself to a budget.  Yes, that is always the easiest thing to tell someone facing financial chaos and sometimes impossible to achieve. But if you are facing a very tight financial situation, you need to try to maintain daily, weekly and monthly budgets. It may be impossible to stick to an artificial, inflexible budget, but over the long run, you will have more and more success living within the budget.

2. Find out the current value of your property.  Many people unable to make both their first and second (and sometimes third) mortgage payment might have options to extinguish mortgages in bankruptcy. Be open to the fact that most property values have decreased in the past year and look at all viable options.

For example, some lenders, but not many, know when there is no equity in the property to secure their loan but will work with borrowers to lessen their monthly payment. You should talk to a local bankruptcy attorney about extinguishing the junior, unsecured mortgages on your property through Chapter 13 bankruptcy.

3. Accept your current financial situation.  Many of our clients come to us after all other options have failed. They have a judgment against them and wages are being garnished or a bank account is being levied. Avoid the "ostrich approach" to your financially precarious situation. Don't stick your head in the sand and hope someone will come to your rescue.

4. Try to find a way to entertain you and your family without spending money.  The Internet is full of thoughtful suggestions on how to enjoy your day without depleting your wallet.  Family and friends should be able to recognize that spending time together can be as enjoyable as spending money together.

Don’t ...

1. Transfer property out of your name.  Trying to hide assets is both risky and illegal. If you have an asset that cannot be protected in a bankruptcy filing, then you need to discuss your situation with a competent professional. There are legal ways to protect assets, and transferring an asset out of your name and immediately filing bankruptcy is not a smart way to begin the new year.

2. Take large cash advances from your credit cards.  People always say to me, "I have $5,000 of available credit on a credit card, should I use it before filing bankruptcy?" This is fraud because you obviously have no intention of paying that money back. Hopefully, creditors will catch this type of conduct and make you pay back every penny of recent spending.

3. Buy a car that overextends your budget.  Car purchases are one of the most common drains on your monthly income. Be very careful about taking on a new car payment, especially if your household already has one car payment. That second payment could be the tipping point to financial insolvency.

4. Try to comfort yourself with 'retail therapy.'  Many people believe that their self-worth is based on the newness of their clothes or the gifts they buy their friends. One act of unbridled exuberance can be the difference between a happy new year and one filled with more financial uncertainty.

5. Take out your financial frustrations on those closest to you.  When faced with financial challenges, many people will take out their anger and frustration on those closest to them. This is easy to do, but completely unacceptable. All you will do is alienate those that care the most about you.

Happy New Year from the one guy NO ONE wants to meet!

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