Events can occur beyond our control that cause us to financially fall behind. This phenomenon occurs to all of us who regularly work and are on a budget, if just briefly. Depending on the circumstances, some of us can fall behind on our financial obligations longer than we ever anticipated, especially with the economy being in the doldrums as long as it has. If the phenomenon continues for any length of time, there is a distinct possibility we will teeter on the brink of bankruptcy. Becoming bankrupt can happen for a variety of reasons including but not limited to a divorce, catastrophic event, foreclosure on personal or business property, failure to pay bills on time, loss of income, health problems, poor business decisions, bad timing, bad advice, or a poor economy.
This personal bankruptcy story was posted on the internet in March of 2011 as comments in a bankruptcy discussion: “I have a new baby. My wife recently had to come off her job because they were not willing to give her a schedule that would allow her to keep working. I work swing shifts & so did she, so how could we get the baby to daycare? We have two debts that I really hate to have. We have a credit card with [a credit card] for about $6,400.00 & an account with [a credit card] worth $5,000.00. She has about 2 accounts that total $2,000.00 each. What can I do? I have a house payment around $1,375.00 per month & a car payment worth $613.00 per month. I am starting to fall behind & I need help fast.”
The debtor in this personal bankruptcy illustration is starting to financially fall behind after his wife lost her job due to having to care for a baby. Before a debtor falls too far behind, it is a good idea to determine just how close you might be to complete bankruptcy before any other action should be taken. The reason being that when you are completely bankrupt, there is really no other action you can take to avoid bankruptcy because you have already arrived.
Determining whether you are completely bankrupt is a rather black and white experience. As a general rule of thumb, you are completely financially bankrupt if your current sustainable income plus any cash reserves will not pay all of your living expenses, pay interest on outstanding loans, and reduce some of your principal on those loans while paying on them for five years. Depending on which state you live, the formula should not include any of your retirement moneys as cash reserves. Paying off debts for five years is chosen because five years is the maximum legal number of years a United States Bankruptcy Court allows an individual to work their way out of bankruptcy protection.
If you are not completely bankrupt, you have other options to pull yourself out of any financial hole including debt consolidation, debt settlement, and debt management. All of these alternatives will require you take a close look at all your expenditures in an attempt to reduce what you can until you catch up on your debts. The options might include selling any financed assets in order to reduce your payments.
As another option for handling debt when falling behind and not yet completely bankrupt, you might consider filing for bankruptcy protection under a Chapter 13 bankruptcy reorganization plan. You might want to file a Chapter 13 in the event you are being harassed by collection activities. Filing will enable you to activate the automatic stay, applicable to all types of bankruptcy filings, and means that the mere request for bankruptcy protection automatically stops and brings to a cessation certain lawsuits, foreclosures, utility shut-offs, evictions, repossessions, garnishments, attachments, and debt collection harassment.
If you find yourself financially falling behind, nearing complete bankruptcy, and feel you are in need of help, consider consulting with a bankruptcy attorney that can help you with understanding how complex bankruptcy laws apply in your particular situation. If you determine you are in need of relief from the stress associated with debt and you live in or around the metropolitan area of San Jose, California, contact us today. We will help you find a bankruptcy attorney in your area that will help you with any questions you may have on bankruptcy law.
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