How to Avoid Filing a Second Bankruptcy

            One of the most common phrases a bankruptcy lawyer will hear from a client once their first bankruptcy has been filed is, "I am never doing this again."  Each time I hear that phrase I hope that the client is right.  I hope that the opportunity for a fresh start will help that client get back on his or her feet and to move them in the direction toward great financial health.

            However, just making the announcement that another bankruptcy will not happen is not enough to make sure that the client is not in that position again.  Unfortunately, it is very common for me to file a second or even third bankruptcy for an individual or couple.  Often the bankruptcies are many, many years apart from each other.  Many times there are very legitimate reasons for a second bankruptcy such as major health problems or an extended period of job loss.  Nonetheless, some clients simply fall back into the same habits of pre-bankruptcy and find themselves back in debt with nowhere else to turn.  While I am always willing to give my clients legal advice irregardless of the number of bankruptcies they have filed, I know that given the option, my clients would opt out of bankruptcy the second time around so I decided to dedicate this blog posting on how to avoid filing bankruptcy for a second or third time.

           First things first....we have all heard that the definition of insanity is doing the same thing over and over again while expecting a different result.  I believe this to be especially true of post-bankruptcy finance.    The first thing that should be done after a bankruptcy (or just prior to filing) if for you to sit down and do a budget.  Take into account the money coming in and the money going out.  Do not set unrealistic numbers, such as $100.00 per month for a family of 4 for food.  Try to make the numbers as close as you can to what you believe you will actually spend on living expenses.  If you aren't sure how much you spend on a certain area, make an educated guess and then save your receipts.  If your guess was off adjust that number later by averaging your receipts.

           I often hear that there is no reason to budget because there is not enough money.  Nothing could be further from the truth.  If you do not sit down and figure out your budget you wouldn't even know that there was not enough money.  And, if you don't have enough money to cover your living expenses, you have a few options.  The first option is to cut unnecessary spending.  Again, I caution you to cut your budget to a point that is unrealistic.  Lets face it, you are going to spend some money each month on entertainment, even if it is just renting a few movies.  However, your daily Starbucks habit or your kid's soccer camp are good examples of expenses that can be cut if you don't have enough money coming in to cover your expenses.  Also, if you are being drug down by a rent payment that you really can't afford make plans to move when your lease expires.  Option number 2 is figure out how to bring in more money to cover your expenses.  This could be working extra hours at the job you already have, setting up a side business or getting a second job delivering pizzas.  Be creative.  There are many ways to bring in extra money.

         Second, put the idea of credit cards, lines of credit, payday loans, personal loans, 401k loans and borrowing in general out of your head.  If you cannot afford to pay for something in cash you cannot afford it.  Just because your neighbor has a new couch doesn't mean that you need a new couch.  Please try not to compare yourself to others because they may only have new things that you don't have because they are drowning in debt and are on the verge of bankruptcy themselves....you never know.

          Third, be budget conscious.  I recommend buying two small accordion files.  One will hold cash for your allowed budgeted variable expenses, such as food, clothing, gasoline, entertainment, etc.  The other will hold coupons.  It is amazing how much further you can stretch your budget with coupons.  It can actually be fun to see how much money you save on things that you would buy anyway.  When there is a sale and you have a really great coupon for something that you would buy anyway (such as toothpaste) stock up so that you have enough of a supply to last until the next round of sales.  Just be cautious to avoid buying things you don't really need or won't use simply because there is a good coupon in the paper.  And remember that coupons are in many other places than the newspaper these days.  They can be found online to be downloaded from grocery stores and printed from the internet.

          Fourth, set up an emergency fund.  Face it.  Things are going to go wrong in life.  The things that go wrong are a lot easier to deal with if you have some money set aside to deal with them.  Since right after a bankruptcy you should no longer be drowning in debt, this is a great time to set up an emergency fund.  I recommend about $1,000.00 initially, to be build on over time.  Even though it can be difficult to save this much money, it is key to avoiding debt.  If you have no emergency fund then you have no choice but to turn to credit when something goes wrong in life, which then gets you right back in the same position as when you started.

         Finally, avoid major financial mistakes during moments of weakness.  One bad decision can put you right back into financial turmoil.  I have seen many cases where the purchase of a vehicle that a person really could not afford set them on a path toward bankruptcy.  There is no reason to have a $500.00 car payment when you bring home $2,000.00 per month.  It will feel much better to drive an older vehicle that is not as nice that you can afford than to stress out about how you are going to make a car payment each month.  I am not saying that a person should never finance a vehicle, because you likely need a vehicle to get to and from work.  I am saying that one poor decision on a major purchase can start a person on the road back toward bankruptcy.

        For those of you who read my blog, I would love to hear your comments on tips for either avoiding bankruptcy or for setting yourself up for financial success after bankruptcy.  For those of you who believe a bankruptcy may be necessary to get a fresh start, please do not hesitate to contact me at 317-575-8222 for a free consultation at Halcomb Singler, LLP.

Halcomb Singler, LLP, is a debt relief agency.  It helps people file for bankruptcy under the bankruptcy code.  No attorney-client relationship with the firm of Halcomb Singler, LLP, is created through this blog. Also, please note that Erika Singler is an attorney licensed in Indiana and does not seek to practice law in any jurisdiction in which they are not properly authorized to do so.  The information contained in this blog is general in nature and should not be relied upon for the circumstances of any individual(s) or businesses.