6 Bad Habits that Can Lead to Bankruptcy

Facing financial ruin and having to declare bankruptcy is a terrifying experience, but one that unfortunately affects many people within the U.S. In order to make sure that you’re financially set and have all of your monetary affairs in order, here are six bad habits that can lead to bankruptcy that you should absolutely avoid:

1. Not Paying Your Bills on Time

One of the worst habits that a consumer can get into is failing to pay bills on time, regardless of what type of bill it is. Whether it’s a student loan payment, a phone bill, household utilities, a credit card, a car payment, or a mortgage, paying your bills on time is important. When a consumer fails to pay his bills on time, a black mark against the consumer’s credit history is often made – as a credit score gets worse, the chances of having to declare bankruptcy skyrocket.

2. Having Multiple Credit Cards

The second biggest mistake that a consumer can make is having an excessive amount of credit cards. While one, two, or even three credit cards may be okay for the person who knows how to manage his debt, any more than that, and even a financially responsible consumer might find themselves in financial trouble. Having too many credit cards is risky because it allows a person with poor spending habits to rack up monstrous amounts of debt with a variety of different companies. If a consumer can’t pay back his credit card on time or in full every month, then his credit score takes a hit. Plus, having multiple credit cards makes a person a more likely victim for credit card fraud.

3. Failing to Budget

Perhaps the single most debilitating bad financial habit a consumer can have is failing to create a budget within his means. Financial solvency is all about establishing a reasonable and manageable budget, and then sticking to it. Too many consumers fail to create a financial plan that works for them, and then end up spending way beyond their means. A budget should include all of the basic monthly and yearly expenses – like rent, food, utilities, a car payment, etc. – as well as extra expenses like eating out, and a savings account. CNN recommends saving 10 to 15 percent of income.

4. Not Creating an Emergency Fund

Let’s face it: emergencies happen. Maybe you’ve locked yourself out of your apartment and require a locksmith (which costs approximately $100); maybe your car gets a flat tire; maybe you have an urgent and unexpected ER trip – whatever it is, being prepared with cash on hand in the event of an emergency is essential to avoiding bankruptcy. An emergency fund and a savings account are not the same thing. The former should be used in an event of an emergency, and savings shouldn’t be used at all – savings are for retirement purposes, or large financial expenses in life, like buying a house or getting a college degree.

5. Making the Minimum Payment Only

All credit cards companies issue a monthly statement, which informs the debtor of how much they owe. However, the credit card company also highlights on the statement the minimum monthly payment that is due. For example, if a person has a debt of $200 that month, they may only have to pay back $35 of it that month. While this may seem advantageous, the truth is that this can be crushing for a consumer. When you fail to pay back the full amount that you’ve borrowed every month, you’ll get charged an extreme amount of money in interest. To help your credit score, and to avoid accumulating more debt than you really owe, always borrow within your means, and pay your credit card back in full every month.

6. Buying the Most Expensive Version of Everything

Even if you are living within an established budget, that doesn’t mean that you need to be buying the most expensive version of everything. Often times, people will choose to buy cars, homes, and other pricey items that they can technically afford, even though the purchase means saving less and living more lavishly than necessary. Because you never know when a financial emergency might happen, remind yourself that while you definitely deserve nice things, you might not need the latest and greatest device, home, or vehicle on the market.

In order to avoid bankruptcy, make sure to set a budget, live within your means, avoid accumulating more debt than you can afford, create an emergency fun, and always pay your bills on time and in full.

Sources

http://www.forbes.com/sites/andygreenberg/2012/01/30/hackers-demo-shows-how-easily-credit-cards-can-be-read-through-clothes-and-wallets/

http://money.cnn.com/retirement/guide/basics_basics.moneymag/index7.htm

http://www.bankrate.com/finance/debt/10-bad-habits-that-lead-to-debt-disaster-3.aspx

http://money.cnn.com/2010/03/23/pf/credit_score_killers/

Filing for bankruptcy can be a hard decision to make.  It means looking at the reality of your financial situation and realizing that you are no longer in control.  For many this decision is reached after failed attempts to turn their debt situation around in other ways and after being in denial about the true financial picture. If you are considering bankruptcy, consider working with Everett Bankruptcy Assistance for more information.

Top Reasons Why People File Bankruptcy

It is never an easy process to admit you are in financial disarray. However, it helps to know there are options. Meeting with a debt settlement lawyer in Seattle will help you understand what those options are. Here are some of the top ten reasons why people file bankruptcy:

1. To Stop Court Proceedings. When you file Chapter 7 bankruptcy, the court will places an automatic stay on all proceedings. This can give you time to reinstate a drivers license if one is about to be revoked.
2. To Salvage Home Utilities. If you have past due utility bills, a bankruptcy filing can freeze utility companies from disconnecting services.
3. To Stop Bank or Wage Garnishment. Most debtors are in over their heads in debt. When you have more debt than income, you can end up with creditors trying to garnish your wages.
4. High Debt Burden. Having a high debt burden can cause you to struggle. Negative income versus debt can qualify you for Chapter 7 bankruptcy.
5. Low Income. Job loss, divorce, medical expenses and other things can cause you to have low income. If you have a low income, you may qualify for Chapter 7 bankruptcy. If the income is over a certain amount, you may qualify for Chapter 13 bankruptcy.
6. Job Loss. Losing a job causes many people to struggle financially. Without money to pay your bills, it is hard for you to do much. Chapter 7 bankruptcy can help you if you are overwhelmed from a job loss.
7. Stop Creditor Harassment. Creditors want their money and they are relentless. Filing bankruptcy will stop those phone calls and letters.
8. Vehicle Redemption. Chapter 7 bankruptcy will allow you to buy a car for its value and not a loan owed amount. Your bankruptcy lawyer in Seattle will be able to work with you to get the right price on the car.
9. Medical Bills. Dealing with major medical bills forces many people to end up with debt. You can use Chapter 7 bankruptcy to reduce the burden of medical debt.
10. Credit Repair. If you have a lot of unsecured debt, bankruptcy can help you discharge this debt and start fresh.

When you realize that bankruptcy is the solution you’ve been looking for here are the important things you should know when filing:

• Look for experienced bankruptcy lawyers in North Seattle.  With so many different laws and requirements to understand when it comes to filing bankruptcy, getting the advice of an attorney who is experienced in the process will not only make filing much easier it will make you feel more confident in the process as well as the outcome.  When choosing a bankruptcy lawyer you should look for one that specializes in bankruptcy filings.  You can learn a lot about individual bankruptcy attorneys by checking out online ratings and reviews as well as talking to previous clients or by asking for references and referrals.  Taking the time to speak to someone who has worked with the attorney can not only give you quality feedback, they can help you to understand the process you are facing and what to expect.
• Understand that bankruptcy can be a lengthy process.  Though you have been struggling with making the decision whether or not to file for some time, making the decision doesn’t guarantee a quick turnaround time.  Filing the petition for bankruptcy is only the beginning of the bankruptcy process.  Once your lawyer files the petition you will begin to gather the appropriate paperwork to complete the bankruptcy process.  While filing for bankruptcy does put in place a stay against creditors, it is not until the meeting of the creditors and the discharge of bankruptcy before you are cleared of the debt.  During the process of completing the bankruptcy filing you will need to gather statements for every creditor, determine which debts are able to be discharged, and make decisions about other debts that you may or may not want to reaffirm.
• Understand that when filing bankruptcy, not all debt is discharged.  When you file bankruptcy your goals is to wipe out all of your debt so that you can start again with a clean financial slate.  However, it is important to understand those debts that cannot be discharged even through bankruptcy.  These debts include student loans, taxes, alimony or child support, some court fees and attorney’s fees, and any debts that are not listed in the bankruptcy paperwork.  Work closely with your bankruptcy lawyer to understand the specifics of your individual case.

When filing for bankruptcy learning about the process will help you have a better understanding of what to expect along the way.  With the assistance of a bankruptcy attorney you will be able to learn how bankruptcy will affect your situation, what paperwork you need to file, and well as what to expect after discharge and how to go about rebuilding your financial future.  The more you know and the closer you work with your lawyer the more secure you will feel in the outcome after filing bankruptcy. Contact Start Fresh Northwest (Everett Debt Assistance) to learn more about what bankruptcy options are available for your situation.