Is Banktruptcy The Answer?

So you have too much month left at the end of your money right?

Many times my clients will ask me if bankruptcy is the answer.  They say:

I am  in debt, I have tried everything to get out of debt but I still don’t have enough money to meet my bills and living expenses.

When I ask, what have you done to get out of debt?  I receive a reply similar to this.

I have gotten a consolidation loan to pay off my credit cards and that lowered my monthly payments so I had more money.  I still didn’t have enough so I started using  the credit cards again.  When the payments from the credit cards and the consolidation loan were too high,  I got took out a second mortgage to pay off the cards and the consolidation loan.  That was good for a while, but I had an emergency that I had to charge on a credit card.  From there I had more credit card charges and now here I am again, I can’t meet the payments on the credit cards and the home equity loan and still pay my expenses.  So is bankruptcy the answer?

Does this sound familiar?

If you are chasing credit card debt with consolidation loan debt and chasing that debt with home equity debt or some other kind of debt like borrowing money from friends or family then yes, you have a a problem.

Here is where it gets tricky, what kind of problem is it you have?  Oh, I know you will tell me you have a money problem.  You just don’t have enough, right?

Wrong!

What you have, now hang on and please keep reading because I am about to give you the answer as well as the solution to your problem.  If you are serious about getting out from under this debt you will keep an open mind, after all you are an ethical person right?  You are not lazy right?

So the problem you have is not a money problem, it is a spending problem, wait, don’t go.  Hear me out, please.

Ninety-five percent of all “money problems” are really behavior or spending habits.  The other five percent are related to a major crisis such as divorce or some other life changing crisis.  This post is not focused on the 5%.  It is here to help the 95%.

In my coaching I have found that most people have more money then they think.  They just don’t know it because they are not keeping a budget and watching what they spend money on.

I have yet to recommend bankruptcy as an option for someone.  What I do recommend is a little tough love.  If you are in a money mess, and truly are looking for a way out, the best thing you could do for yourself, your family and your kids is to work your way out of debt.

Are you aware that the majority of people who file bankruptcy are in debt again within three to five years?  Why, because bankruptcy does not teach you how to manage your money.  The key to getting out of debt and avoiding bankruptcy is to learn how to manage your money properly.

Oh I know you are saying “But bankruptcy is a quick fix, where as working hard will be…well.. hard.”  Nothing worthwhile and honorable comes easy.  As a side note, bankruptcy is not a quick fix nor is it easy.  Sure the paperwork and process has been made “simple” but it has long lasting effects on your credit as well as your self esteem.  Bankruptcy is by no means a badge of honor.  Saying you worked your way out of debt, and kept your word to your creditors by paying off what you owe is a badge of honor and will give you a sense of accomplishment you will never forget.  It will also teach you exactly how to live within your means, that will be a life long lifestyle change that is priceless.

I have had clients tell me that their creditors are encouraging them to file bankruptcy.  Even in my case, back in 1992 when I was in debt and after a job loss,  I contacted my creditors to work out a payment plan with them and I was told “just file bankruptcy.”  That is to clear their books and get a write off, not to help you in any way.

Credit card companies can make things rough on people to the point that to get them off their back they file bankruptcy, but there are ways around being hassled.  Ways in which you are protected by the Fair Debt & Collection Practices act (an act you should know well if you are in debt, know your rights)

Creditors don’t like it and won’t make it easy, but you can make arrangements to make payments and keep your word to pay them back based on your income and other bills.  Some creditors may only get $5 per month, but as long as you are consistent with the payment, you are showing good faith.

Working your way out of debt will also teach you how to live within your means.  The pain of your hard work will be long lasting as well, but in a good way.  After all that hard work, I can almost guarantee you won’t get yourself in debt again.

So is bankruptcy the answer?  In my opinion, no it is not.  Hard work, discipline and a change in your spending behavior as well as working on a way to increase your income is the best long term solution.  It can be done, I did it you can too.

Now the question is, how on earth do you get out of debt without filing bankruptcy?  Well, you have to learn how to handle your money so your money isn’t handling you.  You could pay for a coach.  Yes, I am a coach but even I think there is a more cost effective way to learn how to get out of debt than paying for a money management coach.  I actually recommend working through a self-help program before reaching out to a coach.  You can work your way out of debt by reading and following the instructions in The Total Money Makeover: Classic Edition: A Proven Plan for Financial Fitness.

For the most part, that book will teach you everything I would go over with you during a coaching session for hundreds of dollars less that a coaching session. Go ahead, get the book, read it, follow it, if you have any questions, please ask them on our forums. You will be successfully if you follow the principles the book.