29 Jul Five Signs That You Are Headed For Bankruptcy
You know that you see the light at the end of the tunnel, but are you sure it is not the headlight of the oncoming train? Here are some sure signs that you are heading straight for bankruptcy
- Denial – Life is good, I my job is stable, I’m making all my payments and I am not in default of anything. Really? Take a look around. How any people do you know have retired from the same job they started at age 25? What would happen to your finances if you suddenly got sick and could not work? Or your employer decides to close up shop and move production overseas? Have you taken any time to think about the future and what it might contain? What does retirement look like? What contingency plans do you have if your situation suddenly goes very wrong? Bankruptcy is never a first choice, but it may be the only choice when you fail to plan.
- Liabilities exceed assets. Do this simple exercise: Write down a list of everything you owe. Not what you have to pay every month such as utilities and food, but what you OWE and who you owe it to. Now write down a list a everything you own. You don’t have to get detailed, but a house, cares, bank accounts, general furniture and other possessions should be relatively easy. Now put a value of what you might be able to get for those items if you had to suddenly sell them. Not what you paid for them, but what you could reasonably expect to get if you threw everything in the driveway and had a tag sale. Put aside sentimental blue, put aside the “investment” value – what is your stuff really worth? Now subtract the total of your debt from your assets. Is that a negative number? For 95% of all U.S. residents, it is. Bankruptcy might help you dump some of those debts while allowing you to keep some of those assets. It can improve your bottom line.
- Expensesexceed income. Bow lets undertake a similar exercise. First, write down all sources of income you get in a month. Net pay, not gross. What is the amount you have available to use. Now write down what it cost to live every month. Food, lights, heat, rent/mortgage, gas for the car, insurance, etc, but not your debt payments. Total that all up. Now subtract that total from your total income. Is that a negative number? Now add up all your debt payments and subtract that from the number. Even more negative? Or maybe the number only goes negative when subtracting the debt payments.
- Savings are non-existent. When looking at the assets/liabilities review outlined in step 2 above, was a savings account part of your asset picture? Is there room in your budget determined in step 3 above for some savings plan? Part of the way to avoid denying that there will ever be a problem is planning for one to happen. Flat tires or illness can never be expected, but you can plan for them. If you have a savings plan to cover the cost of that halt tire replacement or the unexpected doctor bill or prescription drug, your budget can absorb the unexpected expense. Some experts recommend starting with a $1,000 savings account, others recommend saving at least three months of income for the unexpected loss of a job. If your budget does not allow for a savings plan, then a bankruptcy may change your expenses enough to start one.
- Look at your history. Once you start to change your thinking about your finances, it is sometimes hard to get away from kicking yourself. Remember, this is not about blame. It is about taking the blinders off and looking at reality. You bought your home for $100,000 ten years ago and now you owe $200,000 on it. While it is important to understand that you spent $10,000 a year more than you earned by taking money out of your home, don’t let it drag you down. Instead look at how you are going to pay off your 30 year mortgage now that you are 40 years old before you reach 70. Who wants to be paying a mortgage when you are retired? Maybe you don;t care, but then it is important to look at your mortgage payment as ask yourself whether you would pay that amount in rent for that home. Since you are never going to pay off the loan, that is what you are effectively doing. Only by looking backward can you charge the behavior you need to succeed going forward. Bankruptcy is a way of recognizing the mistakes you have made in the past, accepting them and making the changes you need so you don’t continue repeating them. Insanity is sometimes defined as repeating the same behavior and expecting a different result.
Believe it or not, a bankruptcy attorney can help you avoid bankruptcy, by helping you fix some mistakes that you are making. At the very worst, you can see what the effects of a bankruptcy are and know what hurts and what helps. Bankruptcy is not a mark of personal failure, but rather a mark of acknowledgement and a chance to fix your mistakes before they are too late.