Like millions of Americans, you might find yourself facing a bankruptcy or foreclosure.  Currently, the number of bankrupt individuals and foreclosed homes is epidemic, and like a flu, the problem is communicable.  One foreclosure helps to perpetuate another, and one bankruptcy forces someone else down the same road.  In many cases, filing for Chapter 13 or handing the keys back to the bank can be a blessing.  Nevertheless, certain steps should be taken to mitigate these financial risks. The first step to guarding against a foreclosure or a bankruptcy is to have a thorough understanding of your financial situation.  While many people believe that they are fully aware of where their money is going, most find that they actually only know a fraction of what they should.  Even for those who have traditionally maintained strict control over their money, it is time to re-evaluate.  A great deal of change has occurred over a very brief period, so we need to view things with fresh eyes.  We need to get back to financial basics, and we can start with a pencil and a piece of paper. Create a list of all your expenses.  This needs to be a comprehensive list that accounts for literally every dollar that you earn.  Calculating your rent or mortgage, car payment, credit cards, utilities, and insurance is not enough.  Consideration needs to be made for things like haircuts, clothing/shoes, morning coffee/newspaper, entertainment, pet food/veterinary bills, property taxes, oil changes and basic maintenance, memberships, cosmetics/toiletries, laundry; this list could go on nearly indefinitely.  It is imperative that you account for everything.  For instance, when you calculate your gasoline expenses, include any gas expenses for boats, recreational vehicles, farm equipment, barbecue grills, lawn equipment, and so on.  When you calculate your food expenses, include groceries, eating out, vending machines, dinner or holiday parties, and take-out or delivery charges.  Be creative and honest in your assessment, and you will soon discover that your money is disappearing to things you don’t even think about.   The last part of your expense sheet should detail amounts being paid toward savings, retirement plans, or investments.  You will know that you are finished with your expense sheet when the total dollars spent equals your total amount of income. When you have a grasp of precisely where your money is going, it’s time for the next step: debt and expense reduction.  Many people find that, once they have completed an exhaustive budgetary analysis,  they see their money being disposed of in rather wasteful ways.  Using your expense sheet, brainstorm ideas for ways to reduce each category of expense.  For example, you can reduce your entertainment expenses by not going out, or reducing or eliminating cable and satellite packages.  You can reduce your mortgage by refinancing, or reduce your rent by moving to a cheaper place or taking on a roommate.  Grocery costs can be drastically slashed by buying pasta, rice, and flour instead of prepared foods, and by buying in bulk.  For almost every expense you have, there is potentially a way to reduce it. In addition to establishing a budget and reducing expenses, there are certain government and private programs available to help homeowners prevent foreclosure or bankruptcy.  For example, Suffolk County, New York, has a program that “ . . . will provide one-time cash grants of as much as $500 on a first-come, first-served basis to the first 1,000 families who apply.”, reports Tom Incantalupo, who reports for Newsday.com.  Other programs include mortgage payment forbearances, interest rate reductions, and mortgage or loan restructuring. Establishing a budget and reducing or eliminating your expenses will provide you with more capital to invest in savings, or to chip away at large loans like mortgages or automobile loans.  Your biggest consideration should be interest.  Meaning, always pay down balances that are at the highest interest rates first.  While it may be tempting to take your surplus money and invest it at 10%, or work on paying off your 7% mortgage, you will actually lose more money in the long run than if you used the same money to pay off a credit card balance that was at 18%.  It’s simple math, folks, but many people often do not see things in simple terms when it comes to their money.   Following these steps will allow you to take more control over your financial situation, and avoid a foreclosure or bankruptcy.  However, if your budgetary analysis shows that you have a negative debt to income ratio even after reducing expenses, then you may need to seek the advice of an experienced bankruptcy or foreclosure attorney.  And, you should bookmark this blog, as we will discuss what will happen if that is the case. –

This entry was posted on Friday, November 7th, 2008 at 7:03 am and is filed under General Information, Long Island Bankruptcy. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.