In Bankruptcy Information

Before making the decision to file bankruptcy, take a long, hard look at finances to see if bankruptcy is really necessary. This is sometimes painful because it involves facing past financial decisions that might not have been the best. There are lots of resources to help make a budget. Here’s one. They all follow this basic format:

Add Up the Debt
Start by figuring out how much debt there is. Gather up all statements and list everyone you owe money to. This includes mortgage(s), car payments, student loans, credit cards, doctor bills — anyone you owe. List each debt separately with the total owed. Set that aside for now.

Calculate Income
Next, itemize what income there is. This includes wages or salary from your job, Social Security payments you might be getting, retirement benefits, rental income, alimony or child support received and anything else that comes in regularly each month. Put this number on a piece of paper under the heading “Income.”

Monthly Living Expenses
Now calculate monthly expenses not counting the debts on the list you just made, unless directed here.

This list will include mortgage, car, and student loan payments but nothing else from the list of debts. It will also include the following:

Utilities (gas, electricity, water, sewer, and garbage collection)

Monthly budgeted amounts for property tax and insurance on your home if not included in your mortgage payment

Food and personal care items

Laundry and dry cleaning

Transportation (gas, oil, maintenance — not car payments)

Medical and dental expenses

Recreation (movies, dining out, magazines, etc.). This includes the morning latte or stop at the convenience store on the way to work.

Birthday and Christmas gifts

Charitable contributions

Insurance not deducted from pay or included in mortgage payments (car, life, disability, etc.)

Back taxes that might be owed

Alimony or child support owed

Don’t guess at these. Spend some time going back through your checkbook or credit card statements to see how much you actually spend. It’s surprising at how much money dribbles away when you get a donut and a drink at the convenience store; go out to eat instead of cooking dinner; on doctor and dentist bills, and the like. Once you’ve got your list, add them up.

Analyze the Situation
Now compare monthly expenses against your income. If income is less than expenses, there are only two things you can do: increase the income or cut back on expenses. To get out of debt, something must be left over each month after living expenses are paid to pay against the debt. If it’s impossible to reduce expenses or increase income to where there is some excess, it might be time to contact me.

If there is something left over each month, good for you! Now calculate roughly how long it will take to repay that debt with that amount of money each month. Divide the total debt (excluding the car, mortgage and student loan payments that are part of your regular monthly expenses) by the amount left over. The result is the approximate number of months it will take to pay off the debt. The actual number will be higher because those debts bear interest, but this will give you a rough idea.

Is Bankruptcy Right?
If the time to get out of debt is five years or fewer, it’s probably worth doing that rather than file bankruptcy. If it will take over five years, bankruptcy might be a better option. I can help you decide what options you have and which are the best for your situation. Contact me if you have questions. You can send us a message here, or call or text (801) 413-3708, or email steve@schamberslaw.com

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