Coping With Debt and Bankruptcy

Being in debt simply means that you owe money to someone else, if you give that money back to that person then you are no longer in debt to them.

Although it sounds simple debt can become a very serious problem for a lot of people, it becomes a bit more than paying a friend back the dollar that you borrowed from them when you had no change for the train home that day you both went shopping together.

Credit cards, bank loans, pay day loans, hire purchases, mortgages, car loans and store cards are just some of the ways people get into debt.

Debt can spiral out of control so much that you are paying out more money on your debt each month than you have coming in.

Being in debt can have a very negative effect on your relationships with others, especially if you have borrowed money from them and cannot afford to pay it back.

Your friends may be understanding at first but as time goes on and you still don't have the money to pay them back resentment begins to set in and eventually those friends lose all faith and trust in you that they feel that they can no longer consider you as a friend.

Families can be torn apart through debt, the most common problem is caused when the partner who takes control of the family finances keeps the ever spiralling debt a secret from their spouse until it is too late, the banks are foreclosing on your mortgage or the collection agency representative is knocking on your door.

Lies become second nature to the debtor " I was going to pay you back today but the car broke down and I had to get it fixed" They hide the letters or throw them in the bin without even looking at them, hoping that the problem will go away. They buy extra lotto tickets or scratch cards hoping for that big win that will get them back into the black.

People lose trust and without trust relationships break down.

Debt and money worries also have a massive impact on your health, stress related diseases and mental health problems have increased over the past couple of years coinciding with the worlds financial meltdown.

Over the course of the "Credit Crunch" doctors have seen a significant increase in patients suffering from stress related illnesses, panic attacks, stomach ulcers, depression, backache , muscle strain, migraines and more alarmingly heart attacks.

Before you can begin to manage your debt you need to sit down and work out how much money you have coming in each month.

Then you need to calculate how much you need each month for basic Living expenses like food, clothing, utilities, rent or mortgage payments travel expenses such as fuel or train fares for getting to and from work.

You then need to work out how much that you can afford to pay back your creditors each month after your basic living expenses.

If your monthly payments work out to be less than the money that you have left over after your basic living expenses then it is a simple matter of prioritising what you need more, that $300 pair of shoes that you would just die for or the stove that will be repossessed if you miss another payment.

If your monthly payments work out to be more than you have left over after your basic living expenses then you could be in serious trouble unless you take action quickly before your finances spiral seriously out of control.

Declaring Bankruptcy at this point could be a consideration but before you take this drastic step you may consider working with your creditors to make your monthly payments more affordable to you.

Working with your Creditors

The most important thing to remember is that the companies who you owe money to, your creditors, want their money back.

When you borrowed the money or purchased your goods on credit you entered into a contract with them to pay them back an agreed sum each month until your credit was paid off completely.

Most Creditors contrary to popular belief do actually have a heart and if you contact them offering a reduced payment each month most will be happy to accommodate so long as you are honest with them and explain your circumstances.

Some creditors will even accept half of your original agreed payment simply because they know that if they dont help with your situation their is a possibility that you will not be able to pay the agreed terms and they will not get their money back.

Of course this means that it will take a bit longer for you to clear your debts off and their is a high probability that your creditors will add a bit more interest to your original loan agreement but it does mean that you can afford to live within your monthly earnings.

Bankruptcy is a last resort but if after working with your creditors and reducing your payments still leaves you with less money coming in than you have going out then the time could be right for you.

Bankruptcy is often seen as a fresh start but it can be a noose around your neck because it stays on your personal record for 10 years meaning that you will have very little chance of getting credit in that time.

Before you consider filing for Bankruptcy you should seek the advice of a financial planner or a Bankruptcy lawyer who will advise you if it is the best thing for you or if there is another feasible way to help you get out of debt.

You don't need bankruptcy protection if you have nothing that a creditor with a judgment could take from you:

If everything you have is exempt under the law of your state, you have nothing to lose to a creditor and no need for bankruptcy protection.

On the other hand, if your financial situation causes such stress that it interferes with your ability to work, parent, or sleep, perhaps you should consider bankruptcy as appropriate for your mental health rather than financial health