Budgeting After Bankruptcy: Step #1 – Know Your Monthly Income

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North Carolina FlagAs a bankruptcy law firm we have filed thousands of bankruptcies for people all across North Carolina. During our years of experience we have seen almost every scenario you can imagine that would lead to someone having to file bankruptcy – whether it is a sudden illness with unexpected medial expenses, loss of a job, divorce, climbing interest rates on credit cards, repossession of a vehicle or the foreclosure of a house.

There are, without a doubt, times where bankruptcy is unavoidable. However, we most regularly see situations where the road that led to bankruptcy was a gradual process. It was a slow financial leak instead of sudden break of the financial dam. In order to ensure that our clients make bankruptcy a once in a lifetime event, we work hard with them to ensure that their post bankruptcy life is one that is financially balanced and as stress free as possible.

The number one way to ensure that your financial life is balanced and less stressful is by creating a monthly budget. Believe me, I know this isn’t easy. I know it takes time and is more stressful than not knowing the reality on the front end. However, creating a monthly budget will help you avoid the financial pitfalls that have led to bankruptcy.

So, with that said, here are five easy to follow steps to create a budget.

Step #1: Determine Your Average Monthly Income
Step #2: Know Your Expenses
Step #3: Create a Balanced Budget
Step #4: Review Your Budget Regularly
Step #5: Use a Technology to Help You

Step #1: Determine Your Average Monthly Income
Out of the five steps necessary to create a truly workable budget this is probably the easiest. In order to know what you can spend each month you have to know what you are making. What we have found to be the easiest way to do this is to get at least your last six months of paystubs or profit and loss statements. Using these paystubs or profit and loss statements you can get an accurate idea of what your net income is each month.

Can this be done even more easily? Of course it can. However, I fear simply using one month may not be as accurate as necessary. If you are paid every two weeks there will be some months where you are paid three times. If you are paid every week then you will be paid five times in a month periodically. Regardless, a six-month sample allows you to get a pretty accurate estimate of what you are actually bringing home each month.

Another area to closely watch when determining your income is bonuses and overtime. If you get an annual bonus and it happens to be in the six-month period you are looking at then it could overstate your income. Same thing with overtime, if you have seasonal overtime be careful not to overstate your income annually by only looking at your “peak” period.

Failing to spot irregular income such as bonuses or overtime may inflate your income, which will cause your budget to be inaccurate and destined for trouble from the beginning.

Determining your income is, without a doubt, incredibly important. However, in my opinion, the most important step of the five-step process to creating a budget is the second step. If you are unable to accurately determine your monthly expenses, then your budget is worthless.

Can I File Bankruptcy if I'm Behind on Child Support or Alimony?

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Father and Daughter on ComputerYes! You can still file for bankruptcy even if you are behind on alimony or child support.  However, be aware that child support and alimony payments are non-dischargeable in a bankruptcy.  In other words, these debts cannot be wiped out in bankruptcy.

If you are paying child support or alimony, you may get behind on these payments and the state court may threaten you with jail time for being behind.  A Chapter 13 bankruptcy will usually allow you get “caught up” on these payments, avoid jail time, and pay the arrearages on the child support or alimony back through the Chapter 13 plan payments over three to five years making monthly payments to the Chapter 13 Trustee. The Chapter 13 Trustee forwards these payments to the person entitled to the child support or alimony.  The bankruptcy does not stop present or current child support or alimony payments, but it can help you get caught up on these late payments and avoid possible jail time.

What if Creditors Keep Calling After I’ve Filed Bankruptcy?

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When you file bankruptcy, an “automatic stay” goes into effect against all of your creditors. The automatic stay, Section 362(a) of the U.S. Bankruptcy Code, among other things, prohibits creditors from contacting you to collect a pre-petition debt. In short, no more harassing phone calls from your creditors! This is one of many advantages the law offers to individuals who file Chapter 7 bankruptcy or Chapter 13 bankruptcy.
Smartphone IconAll of the creditors listed in your bankruptcy will receive notice within 5 business days when your bankruptcy petition is filed. This notice is sent to every creditor, both electronically and by mail. Generally, most creditors will stop all collection attempts immediately after they receive notice of the bankruptcy.

Should you receive phone calls from any of your creditors after you’ve filed bankruptcy be sure and let the creditor know you filed bankruptcy and provide them with your case number, the filing date and the name and phone number of your attorney. It is important that you document all of the phone calls you receive from the creditor by writing down the date and time you receive the calls and the name of the person you talked to. If a creditor continues calling you after you’ve informed them of your bankruptcy filing, they are in violation of the automatic stay and you should contact your attorney to let them know. Most likely your attorney will call the creditor and give them a courtesy warning to stop making contact with the debtor. At that point, if the creditor continues with their collection efforts by calling or sending you bills, your attorney may choose to file sanctions against the creditor for violating the automatic stay.

Can I Keep My Car Lease if I File Bankruptcy?

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When filing bankruptcy you have the option to continue to pay for your car lease payment or you can opt out of your car lease payment.  In a bankruptcy you can legally be released from many of your contractual obligations, this includes things like cell phone contracts, apartment leases, and even a car lease.  In a Chapter 7 bankruptcy those debts will be wiped out. In a Chapter 13 bankruptcy you will pay back only a portion of the total amount owed.

For example, John Doe has one year left on a car lease and is paying $300 a month.  If he does not want to continue the lease and at the time of filing a Chapter 7 bankruptcy he will return the car (after speaking with his bankruptcy attorney first) and will no longer be responsible for that $300 payment each month. Therefore, the additional $3,600 that John Doe would have paid through the end of his lease will be included in his bankruptcy.  In a Chapter 7 bankruptcy the $3,600 will be wiped out. If, instead, John Doe were filing a Chapter 13 bankruptcy then he would be responsible for a portion of the remaining balance.

There are some important things to consider before deciding not to continue the lease. First, and probably the most obvious, is that you will need to return the car.  If that car is your family’s only means of transportation and is a reasonable lease you may want to think twice before surrendering the lease into the bankruptcy.

Another factor to consider is if anyone else’s name is on the lease.  If you and your mother, or boyfriend/girlfriend etc. have both signed the lease then once you release that lease into bankruptcy that other person becomes solely responsible for the financial obligations of that lease.  For example, if John Doe is filing a Chapter 7 bankruptcy and his mother has co-signed the lease with him, she will be solely responsible for the lease payments if he surrenders the lease.

There are a number of things to keep in mind when deciding whether or not to keep your car lease when filing bankruptcy. It is important to know your options and to understand that you can surrender the lease if it is in your best interest.  If you chose to keep the lease then you would just continue your monthly payments as usual. As long as you are current on all payments most things in the lease would remain the same.

Do I Need an Attorney to File Bankruptcy?

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The law does not require a person to hire an attorney to file bankruptcy.  The bankruptcy can be filed “pro se” where you represent yourself.  However, an individual is taking a risk by not hiring an experienced attorney to navigate the court system and to ensure the paperwork is prepared correctly.

It is extremely important that all schedules required by the bankruptcy court are properly prepared and filed with the court in a timely manner.  The bankruptcy court may dismiss the bankruptcy case if schedules are missing.  In addition, an individual risks losing their assets – cash, houses, cars, businesses, etc. – if the bankruptcy paperwork is not prepared in a way that fully protects the filer’s assets. Read more

Do I Still Have to Make Mortgage Payments While I’m in Bankruptcy?

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Once you decide to file Bankruptcy, whether it is a Chapter 7 bankruptcy or Chapter 13 bankruptcy, you will need to decide if you intend on keeping your home.  If you qualify for a Chapter 7 bankruptcy filing and you wish to keep your home, you will need to be current with your mortgage payment(s) and your homeowners’ association dues at the time of filing.  As per federal bankruptcy law, you must remain current throughout the duration of the bankruptcy; this includes first, second, third mortgages attached to the home, as well as, your homeowner’s association dues.  If you fail to keep current with your mortgage payment(s) or your homeowners’ association dues, the “relief from stay” can and most likely will be lifted and the mortgage company or the homeowner’s association may initiate foreclosure proceedings on the home.

Family in Front of House

In a Chapter 13 bankruptcy filing, you will make monthly payments to the Trustee’s office.  The Trustee will then distribute those funds to your creditors.  The creditor payments are according to priority deemed by the Bankruptcy Court.  Your mortgage lender is almost always one of the creditors at the top of the list.  Therefore, you will not be making direct payment to your mortgage lender if you are behind on payments.  This payment will be included in your Chapter 13 payment plan and the Trustee’s office will make the mortgage payment from the funds you send each month.   An exception would be your homeowners’ association dues, which you will continue to make payment directly to the homeowners’ association.  Also, in some districts if you are current on your mortgage payment the Trustee will allow you to make direct mortgage payments to the mortgage company.

Regardless of which type of bankruptcy you plan to file, if you want to keep your house you will need to continue to make your mortgage payments and stay current on your payments.