At Halcomb Singler my clients often tell me that they want to make sure that they never have to file another bankruptcy. I have no doubt that each and every one of the clients I meet with means this from the bottom of their heart and has not intention of ever filing for a second bankruptcy. However, in order to avoid another bankruptcy fundamental habits must change or the outcome will not change. Have you ever heard the cliche that the definition of insanity is doing the same thing over and over again and expecting a different result? This also holds true with personal finance. In my opinion, the first step to financial health after a bankruptcy is to re-establish your emergency fund.
I was inspired to talk about emergency funds today because I read an article on CNN Money the other day titled "Many don't have $2,000.00 for a rainy day." According to the article, 28% of Americans said they were certain that they could not come up with $2,000.00 in 30 days for an unexpected expense or medical bill. Only 25% of Americans said that they were confident that they could raise $2,000.00 in 30 days for an unexpected expense. These numbers are disturbing to say the least.
As a bankruptcy attorney, it is typical for me to meet with people who have no emergency fund. Many times the person or couple had a fully funded emergency fund (6-8 months expenses) prior to hitting a financial wall that ate up their emergency fund. There is no guarantee that having an emergency fund will permanently insulate you from ever having to file a bankruptcy. Life can throw some stuff at us that is too much for any emergency fund to handle. However, re-establishing an emergency fund after bankruptcy is crucial to avoiding a second time in bankruptcy court.
The reason that an emergency fund is so important is that life happens. Your car will break down. Your child will need to go to the doctor. You will need to make repairs around the house. When your car breaks down you have to get it fixed. If you don't get it fixed you won't be able to make it to work and you will no longer have a job. So, when there is no emergency fund you must turn to credit to pay the mechanic. The fact is that these little expenses can get us into trouble when we have to use credit each time to make ends meet. This is true because after you put that first car repair on credit a portion of your income is going to pay off that credit. When another emergency comes up you still don't have an emergency fund because a portion of your income is going to pay off the first emergency. As you can see, it is easy for the cycle to progress over a number of years until you are left without enough money to pay your living expenses and you are back in bankruptcy.
So, if you have just filed a Chapter 7 Bankruptcy make it a priority to re-establish your emergency fund. Take advantage of the fact that your creditors have been wiped out in your bankruptcy proceeding and get back on a good financial track. This means sitting down and setting out a budget that includes emergency savings. It also means making hard choices and really differentiating between what you need and what you want. There will be no room for a new i phone, a vacation or getting your nails done in the budget until you have your full emergency fund in place. The faster you can build up your emergency fund to a full 6-8 months of expenses the better shot you have of avoiding bankruptcy for a second time.
At Halcomb Singler we are dedicated to giving our clients advice not just on bankruptcy, but also on how to recover from bankruptcy and how to hopefully avoid another bankruptcy. If you have a tip about how you rebuilt your emergency fund following a bankruptcy please share it in the comments. Halcomb Singler is conveniently located in Carmel, Indiana, Halcomb Singler provides a free legal consultation regarding bankruptcy or debt settlement. Please complete and submit our contact form or call us directly at 317.575.8222 for an appointment. Evening and weekend appointments are available.
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.
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