Most people go through periods of financial hardship during their lives. Some people find ways to increase their income and pay off debt, and other people have no choice other than to file bankruptcy in order to get out of their financial mess. If you're dealing with financial hardship and overwhelming debt right now, you may be wondering which camp you're in. Are you in a situation you can still fight your way out of, or is it best to throw your hands up and opt for bankruptcy? Here are four steps to follow in order to decide.
1. Assess where your money is going.
If you are not already tracking your spending, sit down and download an app that allows you to do this. There are some apps that coordinate directly with your bank's app and other money apps and track your spending automatically. There are others that allow you to manually input all of your spending. Which type you choose is up to you, but at the end of the month, you need a summary of where each of your dollars has gone. How much have you spent on groceries? How much have you spent eating out? How much did you pay towards debt? You should find a way to track these things.
2. See if you can cut back.
Now that you know where your money is going, see if there are places where you can cut back. Maybe you spent $500 on eating out last month. You could cut that back to $0 if you are desperate enough! Maybe you spent $200 on clothing that you really did not need. Total up the money you think you did not really have to spend. Then, figure out how much you owe on your bills each month. When you add your cut-back amount to the amount you already paid on your bills, does the amount fully cover your bills? If it exceeds your total bill amount, that's even better — it means you can work towards paying off debt faster.
3. Assess your income situation.
Ask yourself if there is a way you could reasonably raise your income in the coming months. Could you take on a part-time job after your day job? Maybe you could start selling craft items online, or perhaps a friend would pay you to babysit their children. Consider asking for a raise if you have been performing well in your job for a while. Assess whether the amount you could reasonably earn with a second income would make it possible to cover your bills and pay down your debt.
4. Talk to a bankruptcy lawyer.
If you don't think that you can cover your bills even if you cut back on unnecessary spending and/or increase your income, then it is time to talk with a bankruptcy attorney. They will ask you to bring all of your financial information with you. They can then look over your finances and tell you whether you are eligible to file. Bear in mind that not all types of debt are dischargeable in bankruptcy. For example, you typically cannot discharge student loans, though in some cases, it is possible. Your attorney will save you the headache of filing only to find out that the majority of your debt can't be discharged.
In some cases, your attorney may recommend that you enroll in a credit counseling or financial literacy program for a month or two and then reassess your situation. If you are still unable to pay at that time, they can help you file the paperwork and represent you in court.
The decision to file bankruptcy is not an easy one, but if you follow the steps above, it should be manageable.
For more information, visit a website like georgettemillerlaw.com.