Focusing on consumer bankruptcy practice, I file a lot of Chapter 7 and Chapter 13 bankruptcies. I get to meet with a lot of people in similar situations, and I see some similarities in their concerns and problems. Some common trends develop. While these are far from universal, they are some simple things to avoid when trying to fix your credit or limit your debt.
- Open all of your mail. Many of my clients stop opening their bills at some point. I can understand the reluctance to do so. You can only receive so many threatening letters and admonishments before the idea of opening your mail starts causing stress and anxiety. But, it is best to keep opening your mail. For one thing, it keeps you appraised on how much money you owe, and information is extremely important. Second, it can keep you notified about potential lawsuits, repossessions, and garnishments. Too many clients are confronted with problems too late in the process to do anything about it because they do not open their mail.
- Don't buy brand new cars. The value of a new car plummets when you drive it off the lot. Most people know this, but it is a bad idea to overlook this knowledge when you are facing debt problems. Many of my clients are forced to scrap these expensive loans in Chapter 7 bankruptcy and scramble for a more affordable vehicle. Or, they must file Chapter 13 bankruptcy and keep making the payment, which makes completing the process more difficult. Buying a car that is even a year or two old will potentially save you more than $100 per month. Also, rolling old car loans into new car loans can further complicate the problem by putting you even further underwater.
- File your taxes as they become due. Taxes are one of the types of debt that are not dischargeable in Chapter 7 bankruptcy. They won't go away if you ignore them. In fact, failure to pay taxes can lead to future tax returns being withheld, or even worse, garnishments on your wages. Finally, you cannot file for bankruptcy and receive a discharge unless all of your taxes are filed.
- Taking out "payday" loans. These short term bridge loans are normally at extremely high interest rates. While they are dischargeable in bankruptcy, they should still be avoided if at all possible.
Avoiding the above suggestions will sometimes prove impossible, and doing one of the above on its own will not of course automatically lead to bankruptcy. No one is saying, for instance, that you can never buy a new car. But, taken together, these can be viewed as situations that lead to bankruptcy. If you can't pay your taxes, you shouldn't buy a new car. If you take out a payday loan, you better keep track of exactly what you owe, before the debt explodes, etc. Keep these in mind if your debts become a bigger issue every month. Contact us if you feel the need to discuss your issues, we'll be happy to set up a free consultation!