Dear Debt Adviser,
I am in debt, about $6,000 worth. I filed for a Chapter 13 bankruptcy in 2004 and was discharged in 2008. I am reconsidering filing another. Are there any other options besides bankruptcy?
If I had a wall handy, I’d bang my head against it! You’re telling me that in one year you are back to considering another bankruptcy? Some good news is that you can’t file Chapter 13 again for at least two years, or Chapter 7 for four years, from your last discharge.
So slow down and listen up. I am going to start with my advice first, and then I will address your question.
You are in desperate need of a workable financial plan to help you manage your income, and you need to begin to live within your means. In other words, you must stop spending more than you earn, which causes you to end up in a place where you are asking questions about bankruptcy and its alternatives.
Now that I’m calmed down, there are other options for you, and I’m glad you asked. My first recommendation is to develop a financial plan that will take into account those unexpected events, short of life-altering catastrophes, that cause many of us to fall into debt. That will help to alleviate your need to take on debt.
This is not as complicated as it seems. You don’t need to be a financial planner to have a financial plan any more than you need to be a weather forecaster to know which way the wind is blowing. Simply start by describing what you want your life to look like in the future. This forms the basis for setting your short- and long-term financial goals. Then, write down all your monthly expenses and all your sources of income. Be sure to include savings for those goals you set and some money for emergencies. Without a cushion, you will never get your finances under control.
If the expense side is more than your income, you have two choices: Trim expenses or increase your income. It is likely you will need to reduce expenses either way, so I’d start there. Areas to keep in mind when cutting expenses include entertainment, clothing, food and transportation. You could save money by eating in more, driving the car you need rather than the one you want and looking for free or inexpensive entertainment.
Next, let’s address those unexpected life events that happen to everyone and can wreck our finances. The best way to avoid unwanted debt from unplanned expenses is to save for the unexpected. My father had a saying that would make me roll my eyes: “You take care of the nickels and the dimes, and the dollars will take care of themselves.” I never liked that advice when it was pointed at me, but the sentiment is just as relevant today as it was then.
Put aside a regular amount each month into an emergency savings account. You may need to start small, but even $25 per week will get you started, and getting started is half the battle. As you become more financially secure, add to the amount per month until you have saved at least six months of your living expenses.
Now for your question about alternatives to bankruptcy. You may find that $6,000 is a sum that you can pay off in no time with a plan. If your debt is credit card debt, you could begin by contacting your creditors and requesting a hardship repayment program. Another alternative is credit counseling. For the amount you owe, I’m not sure you need a debt management plan as much as you need just some help and advice.
If you’d rather not speak directly to your creditors or if the debt is unmanageable, contact a reputable, accredited credit counseling agency and visit with a counselor. Should you decide that a debt management plan is in your best interest, your counselor will communicate with your creditors on your behalf and try to work out a repayment plan you can afford.
The bottom line is that you need to break the cycle of unwanted debt and start controlling your financial future. I know you can do it!