A Bankruptcy Lawyer’s Guide…To Avoiding Bankruptcy

In my thirty-plus years as a bankruptcy lawyer, one surprising fact has become apparent: A majority of my clients did not get into financial difficulty “on purpose.” Rather, they found themselves with impossible debt loads almost by accident—essentially by being unconscious of their own unwise financial habits. Sadly there is no comprehensive education available to citizens about how to handle money matters and avoid such harmful habits.

This state of affairs is not surprising when we realize that debt is the most heavily advertised product on the planet. The answer, of course, is debtor financial education. Knowing more about how debt can ensnare the unwary will lead to more responsible spending, less resort to debt—and fewer bankruptcies.

Here are some suggestions for good financial health you can apply to your own life.

Believe it or not, your first step, and one of your most powerful moves, is to put your credit cards in a drawer. Don’t carry them around; use only cash and your debit card. While you can always take the card out in an emergency, the unconscious use of credit cards is a major reason folks lose control of their finances. Avoid credit cards like (forgive me) the plague.

Once the cards are out of the way you can address your spending. It is common for clients I see to simply not know where their money goes. With no financial “compass” to guide them it’s an easy next step to getting into debt difficulty. But getting present to one’s finances is a huge step toward getting control. What is “getting present”? Simply put: Pulling out your bank records for the last three months and actually sorting out by category every dollar you’ve actually spent. Just seeing where your cash goes leads to wiser spending.

Next, map out your credit card bills. List them with all the balances, interest rates, minimum payments, and due dates. Since your cards are already locked a drawer you’re now going to develop a plan for paying them down. Start with setting automatic payments from your bank account so you’ll never miss another payment. Then concentrate on the card with either the highest interest rate or the lowest balance. Make paying down the cards one of your highest priorities.

Next tip: Develop an emergency fund. Regardless your income, everyone should have a savings plan and, for it to work, it should be automatic. I recommend setting up a savings account with a local credit union and then fund it with an automatic deduction from your paycheck. It doesn’t have to be a lot—say $25 per payday. The secret is to save consistently. Having a cushion built up the next time there is a money crisis means avoiding having to go into debt.

A last tip that applies to all efforts to get control of your finances: Be on the same page as your partner. Whether you’re married or just in a committed relationship, competing interests are suicide. This applies to all facets of your financial lives. Have a real heart-to-heart, and don’t keep secrets—put everything on the table.      

These are just a few of the many steps it takes to build financial wisdom. But the first steps can lead to discouragement—a feeling that the problem is so big that nothing can be done. I’m here to encourage you to take those small steps and to create those good habits that can make changes in your life. If you apply yourself you will see changes in just a matter of weeks. Best of luck!