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Congratulations!
You've successfully completed your bankruptcy. In 75% of cases, you've just completed a Chapter 7 Bankruptcy which is oftentimes called a "Liquidation" or "Straight" Bankruptcy. Other Debtors have typically completed a Chapter 13 Bankruptcy which is unique in that it uses a 60 month repayment program to keep debtors on track with their budget and also pay back between 10% and 100% of their debts. This guide is especially designed to help those debtors who are leaving a Chapter 7 Bankruptcy.
As you know, the filing is done by your attorney, then 30 days later you have a 341 meeting. 90 days after that you typically have a discharge order and your case is closed. Here's the problem, you have just gone from having typically $60,000 in credit card debt with minimum payments of $1200 and payday loans, garnishments and all sorts of other things that disrupt planning and budgeting. In this guide, we will discuss how to plan a good budget in the newly stable environment created.
The first year: The first year after a Chapter 7 Bankruptcy can be traumatic. In many cases, a car was surrendered, a house given up at foreclosure and possibly a new job has replaced the job lost which caused the bankruptcy in the first place. So let's talk about the big things to worry about in the first year:
1) Set Up a Budget
2) Determine how long you can live in your home if it was surrendered in the bankruptcy
3) Figure out inexpensive transportation options if you gave up a car in the bankruptcy
The Budget:
A. Items that cannot be changed:
1. Electricity
2. Gas
3. Water and/or sewer bill
4. Basic Telephone Service
5. Basic Food
6. Basic Dry Goods
For Electricity and Gas Bills, you should get on a "budget" plan that allows you to pay the same amount each month. If you are estimating your budget amount, simply take one year of bills and divide the total of all the bills by 12. This is your average amount spent on that utility.
For Water and/or sewer Bill, determine whether paid monthly, quarterly, semi-annually or yearly. If anything other than monthly, set up a savings account at a bank specifically for this bill and the put the same amount in monthly and transfer the necessary amount into your checking account when you are making payments.
Basic Telephone Service - Remember this is a discussion only for the first year and designed to see how low you can get your fixed utilities that you must have. The goal is to see just how much flexibility you have. In this area, you should determine if you want a mobile phone or landline. The bottom line is - you don't need both. I recommend a voice only plan for less than $50 per month. Internet Service, TV Service and other service are nice but not necessary to everyday life. Bottom line - those are part of the choices you get to make with your "extra" income which is under planning.
Basic Food - What is this? This is the food that is necessary to live. Not necessarily what you want or desire, but what is necessary to live a healthy life. Bottom line, Meat, Fruit, Bread, Dairy. The typical family of four spends about $800 on these necessary items. If you have trouble with staying in the budget, simply try one week without the following:
a) Bottled Water
b) Soda
c) Candy
d) Booze (Beer, Wine & Liquor)
Even though this isn't fun - the point of this exercise to find out how much power you can yield by removing any lack of control over your necessary "fixed" budget items.
Basic Dry Goods: What is this? This is the old fashioned way to describe: Toilet Paper, Soap, Razor Blades, Garbage Bags, Cleaning Supplies, Cookware, First Aid Supplies, Toiletries & Cosmetics. The typically family can keep this under $400 per month. If you are having trouble staying within these budget amounts try eliminating: 1) Paper Towels 2) Magazines and Newspapers 3) Anything that won't be used in the next week 4) House Decorations 5) New Sheets, Linens, Towels, etc.
B: Items that can be changed:
1. Transportation
2. Insurance
3. Medical
4. Schooling
5. Recreation
6. Vacation
7. Hobbies and Interests
8. Out to Eat, Drinking and Concerts
9. Unnecessary Home Repair or Decoration
Transportation: Do you need two cars? Can you do with one or none. Does your job require you to travel in a way that you need a car. Is the car that you own a low cost car to run. This can usually mean less stylish and prestigious but the reduction in stress from a low cost car is superior to the satisfaction of a prestigious car.
Do you need life insurance? Do you have kids who will need money if you die. If so, great....now how much. Think about this, if one of you dies and your spouse has three years of income to live on, he or she won't have much trouble getting into a new job and situation to replace the income lost. If both of you die, then you should have enough money for your guardians to take car of your children for at least several years after you death. Bottom line - a 20 year policy of term life insurance equal to your salary times 3 is enough. This should never be over $100 per month for a healthy married couple in their 30's. Do not buy whole life or buy insurance to pay off your house. This is useless. The maintenance cost and taxes on a home will take it away from the survivor even though there isn't a mortgage any more.
Auto Insurance is another one. If you have less than $10,000 in cash and all of your other assets are in retirement accounts, than the State Minimum Liability Requirements are all you need. If you have a loan, then get the minimums for collision to satisfy the lender. As you get more assets you should increase this coverage. This includes increased equity in your home.
Health Insurance: Bottom line, if you don't have a policy at all from work or paid by yourself, you should get a basic policy that at least gives coverage for the big events and also gets you access to reduced rates at hospitals. Sometimes a family of 4 can get a policy like this for under $400. However, you should switch jobs to one that provides health insurance as a benefit until the new Health Care Act changes how we are able to purchase health insurance.
Medical: This is an easy one: If you are on a lot of recurring medications which are a monthly fixed amount that you cannot afford, you need to sit down with your doctor and find out which ones are really necessary for your survival and which ones can be swapped out for older cheaper medications that will allow you to survive until you can afford the medications you really want, but may not really need. A very frank and direct discussion with your physician is necessary because they are not incentivized to reduce your costs.
Schooling: You may want to send your kids to a private school, but if the money doesn't exist now, it may or may not later. Bottom line - compare your net tuition after scholarships and grants (not loans) with the cost of public, magnet or charter school offerings and try to figure out something does not overburden your fixed expenses. In the future, if your income increases, you can simply allocate that additional income towards a private school education. On average, the IRS estimates that a family should spend no more than $147.50 per month on a child's education pre-college. While this amount may not work for everybody, it is a good guide to how many budget for pre-college education.
Recreation: This is a tough area to budget for, but essentially, in the first year especially, you need to get the most bang for the buck and to be very selfish about making sure that you spend your funds on activities that you and your family like and not to just please others who have suggested an activity.
Vacation: Depending on your job, vacation may or may not be included. Bottom line, we all need a vacation. Here's a primer on vacation: There is the one day vacation, the weekend extended and the week off. Bottom line, if you can do it, one week of vacation away can have dramatic benefits for your mental health and can refresh you greatly. If one week doesn't work either because of cost or scheduling days off at work, you should consider extending a holiday weekend and going away some where. Here's the bottom line, take 30% of your annual discretionary budget and try to save it in a special savings account for your vacation. If you end up with $900 than pick a destination based upon $450 in upfront charges to go and $450 to spend along the way. In the end, it is the experiences you have on vacation that are most important and not what you did and/or how much money you spent.
Hobbies and Interests: It is important to do something that takes your mind off of work and family but is compatible with your obligations to work and family. For example, you may not be able to afford a sailboat, but maybe you can sail for free as crew. You may not be able to afford a motorhome, but you may be able to afford a really good tent and use it twelve times every summer. Your interest may be Roll-Royce History, but you won't be owning a Rolls-Royce Collection, you may need to be part of a local club, work as a volunteer at a museum or simply collect books and memorabilia. When it comes to sports, the cheapest choice is TV, but let's face it, if sports is your life and you like baseball, then maybe a partial season of tickets is the way to go.
Out to Eat Drinks and Concerts. Look at how much extra money you have every month and decide how much you want to allocate towards going out, concerts and other entertainment. If your budget isn't big, then may pick a concert once every 3 months instead of a mediocre list of events every week. Or eat before going out and just have drinks. In the first year after bankruptcy, creativity is the key. The problem is friends and family who may have unreasonable expectations of your ability to entertain and spend money going out - this is the first time you will really see what the quality of those relationships are - after a frank discussion about what you will not be doing any more, you will see the true colors of your friends and learn how to navigate family politics.
C. Planning Items for the Future:
Take the amount of money that is discretionary every month and think about how you would like to spend it: General Saving, Saving for something specific, Education, Vacation, Saving for Kids, Saving for Retirement.
D. After the first year:
1) Look for a new job
2) Get a new career
3) Plan for education to get new career and more income.
4) Reduce Commute to Work
5) Improve Schooling and Reduce Cost through Public Schools that meet your children's needs
6) Purchase more reliable car with lower operating costs
7) Find Better Place to Live
8) Plan a Vacation
Look for a New Job: If you have been in the same job for years without any pay increase, maybe it's time to consider looking at whether your skills are worth more money elsewhere. This can help with making your budget looser and letting you explore new hobbies, interests and vacations. The typical jobseeker who is currently employed looks for 6-12 months for a better job. It never hurts to look around.
Get a New Career: Before you lose your job, get downsized, get laid off or suffer cutbacks or furloughs at work, it's time to look at whether you are working in the right industry. For example, the printing industry has suffered continuous declines for at least 10 years as many types of information are now delivered digitally. A print set up person who has a good grasp of graphic layout should maybe head to a different firm to do web design set up or advertising layouts which may not be printed but use the same set of skills. Bottom line, if you are in a dying industry - they usually don't come back and it is best to switch industries before you are laid off.
Plan Education for a new career - it sounds easy, but the typical graduate degree earned while working takes 5 years. Bottom line, if you think you need more education, to make the next step in your career and continue to have increased income, you need to start now to have the education you need in five years. Choosing a school is dependent upon net cost, logistics and your schedule.
Reduce the commute to work. Reducing your commute to work can sometimes save thousands of dollars per year and save sometimes 10 hours a week in wasted time. Bottom line - if you work in an industry whee a company is located closer to home, it may take 6 months to a year to make the change. It is good to start the planning now.
Reduce the Cost of Schooling - Sometimes you have to break a comfortable habit. If you have been at a private school for years, but it contributed towards your bankruptcy, then you have to recognize the fact that you may not be able to send your child to private school. Sometimes Scholarship and Grants can help, but if you need to reduce your budget now to stay out of financial trouble, you should put other concerns aside and do what you need to do.
Purchasing a Reliable Car - Many times, the least costly car isn't the one with the lower gas mileage or one that is a car that everybody thinks is great. What's important is reducing the overall cost which includes: Maintenance, Gas, Oil and Insurance. To do this right, you should look over all of your maintenance costs for the last year, call your insurance company to see how your existing and proposed car rate for premiums and compare mileage costs.
Find a Better Place to Live: Finding a better place to live should include the following factors: 1) Proximity to your job 2) School System Quality if you have children 3) Functionality and Space of the New Residence 4) Overall Cost versus how much you to spend in your budget. For most people leaving bankruptcy, you must wait 3 years after your house is sold in foreclosure to qualify for a FHA First Time Homebuyer Loan.
Plan a Vacation: The key to a long happy life is making activities outside of work the focus and making work an enjoyable means to an end. Planning frequent high quality vacations with an emphasis on moderate cost and high quality activities is the key. The best vacations are always planned months in advance and often include friends and family. Good planning is free. Great Value is Priceless.
For more assistance with your post bankruptcy situation, please call: 877-GO-GO-NLO or Email our firm at dcnelson@nelsonlawoffice.com
You've successfully completed your bankruptcy. In 75% of cases, you've just completed a Chapter 7 Bankruptcy which is oftentimes called a "Liquidation" or "Straight" Bankruptcy. Other Debtors have typically completed a Chapter 13 Bankruptcy which is unique in that it uses a 60 month repayment program to keep debtors on track with their budget and also pay back between 10% and 100% of their debts. This guide is especially designed to help those debtors who are leaving a Chapter 7 Bankruptcy.
As you know, the filing is done by your attorney, then 30 days later you have a 341 meeting. 90 days after that you typically have a discharge order and your case is closed. Here's the problem, you have just gone from having typically $60,000 in credit card debt with minimum payments of $1200 and payday loans, garnishments and all sorts of other things that disrupt planning and budgeting. In this guide, we will discuss how to plan a good budget in the newly stable environment created.
The first year: The first year after a Chapter 7 Bankruptcy can be traumatic. In many cases, a car was surrendered, a house given up at foreclosure and possibly a new job has replaced the job lost which caused the bankruptcy in the first place. So let's talk about the big things to worry about in the first year:
1) Set Up a Budget
2) Determine how long you can live in your home if it was surrendered in the bankruptcy
3) Figure out inexpensive transportation options if you gave up a car in the bankruptcy
The Budget:
A. Items that cannot be changed:
1. Electricity
2. Gas
3. Water and/or sewer bill
4. Basic Telephone Service
5. Basic Food
6. Basic Dry Goods
For Electricity and Gas Bills, you should get on a "budget" plan that allows you to pay the same amount each month. If you are estimating your budget amount, simply take one year of bills and divide the total of all the bills by 12. This is your average amount spent on that utility.
For Water and/or sewer Bill, determine whether paid monthly, quarterly, semi-annually or yearly. If anything other than monthly, set up a savings account at a bank specifically for this bill and the put the same amount in monthly and transfer the necessary amount into your checking account when you are making payments.
Basic Telephone Service - Remember this is a discussion only for the first year and designed to see how low you can get your fixed utilities that you must have. The goal is to see just how much flexibility you have. In this area, you should determine if you want a mobile phone or landline. The bottom line is - you don't need both. I recommend a voice only plan for less than $50 per month. Internet Service, TV Service and other service are nice but not necessary to everyday life. Bottom line - those are part of the choices you get to make with your "extra" income which is under planning.
Basic Food - What is this? This is the food that is necessary to live. Not necessarily what you want or desire, but what is necessary to live a healthy life. Bottom line, Meat, Fruit, Bread, Dairy. The typical family of four spends about $800 on these necessary items. If you have trouble with staying in the budget, simply try one week without the following:
a) Bottled Water
b) Soda
c) Candy
d) Booze (Beer, Wine & Liquor)
Even though this isn't fun - the point of this exercise to find out how much power you can yield by removing any lack of control over your necessary "fixed" budget items.
Basic Dry Goods: What is this? This is the old fashioned way to describe: Toilet Paper, Soap, Razor Blades, Garbage Bags, Cleaning Supplies, Cookware, First Aid Supplies, Toiletries & Cosmetics. The typically family can keep this under $400 per month. If you are having trouble staying within these budget amounts try eliminating: 1) Paper Towels 2) Magazines and Newspapers 3) Anything that won't be used in the next week 4) House Decorations 5) New Sheets, Linens, Towels, etc.
B: Items that can be changed:
1. Transportation
2. Insurance
3. Medical
4. Schooling
5. Recreation
6. Vacation
7. Hobbies and Interests
8. Out to Eat, Drinking and Concerts
9. Unnecessary Home Repair or Decoration
Transportation: Do you need two cars? Can you do with one or none. Does your job require you to travel in a way that you need a car. Is the car that you own a low cost car to run. This can usually mean less stylish and prestigious but the reduction in stress from a low cost car is superior to the satisfaction of a prestigious car.
Do you need life insurance? Do you have kids who will need money if you die. If so, great....now how much. Think about this, if one of you dies and your spouse has three years of income to live on, he or she won't have much trouble getting into a new job and situation to replace the income lost. If both of you die, then you should have enough money for your guardians to take car of your children for at least several years after you death. Bottom line - a 20 year policy of term life insurance equal to your salary times 3 is enough. This should never be over $100 per month for a healthy married couple in their 30's. Do not buy whole life or buy insurance to pay off your house. This is useless. The maintenance cost and taxes on a home will take it away from the survivor even though there isn't a mortgage any more.
Auto Insurance is another one. If you have less than $10,000 in cash and all of your other assets are in retirement accounts, than the State Minimum Liability Requirements are all you need. If you have a loan, then get the minimums for collision to satisfy the lender. As you get more assets you should increase this coverage. This includes increased equity in your home.
Health Insurance: Bottom line, if you don't have a policy at all from work or paid by yourself, you should get a basic policy that at least gives coverage for the big events and also gets you access to reduced rates at hospitals. Sometimes a family of 4 can get a policy like this for under $400. However, you should switch jobs to one that provides health insurance as a benefit until the new Health Care Act changes how we are able to purchase health insurance.
Medical: This is an easy one: If you are on a lot of recurring medications which are a monthly fixed amount that you cannot afford, you need to sit down with your doctor and find out which ones are really necessary for your survival and which ones can be swapped out for older cheaper medications that will allow you to survive until you can afford the medications you really want, but may not really need. A very frank and direct discussion with your physician is necessary because they are not incentivized to reduce your costs.
Schooling: You may want to send your kids to a private school, but if the money doesn't exist now, it may or may not later. Bottom line - compare your net tuition after scholarships and grants (not loans) with the cost of public, magnet or charter school offerings and try to figure out something does not overburden your fixed expenses. In the future, if your income increases, you can simply allocate that additional income towards a private school education. On average, the IRS estimates that a family should spend no more than $147.50 per month on a child's education pre-college. While this amount may not work for everybody, it is a good guide to how many budget for pre-college education.
Recreation: This is a tough area to budget for, but essentially, in the first year especially, you need to get the most bang for the buck and to be very selfish about making sure that you spend your funds on activities that you and your family like and not to just please others who have suggested an activity.
Vacation: Depending on your job, vacation may or may not be included. Bottom line, we all need a vacation. Here's a primer on vacation: There is the one day vacation, the weekend extended and the week off. Bottom line, if you can do it, one week of vacation away can have dramatic benefits for your mental health and can refresh you greatly. If one week doesn't work either because of cost or scheduling days off at work, you should consider extending a holiday weekend and going away some where. Here's the bottom line, take 30% of your annual discretionary budget and try to save it in a special savings account for your vacation. If you end up with $900 than pick a destination based upon $450 in upfront charges to go and $450 to spend along the way. In the end, it is the experiences you have on vacation that are most important and not what you did and/or how much money you spent.
Hobbies and Interests: It is important to do something that takes your mind off of work and family but is compatible with your obligations to work and family. For example, you may not be able to afford a sailboat, but maybe you can sail for free as crew. You may not be able to afford a motorhome, but you may be able to afford a really good tent and use it twelve times every summer. Your interest may be Roll-Royce History, but you won't be owning a Rolls-Royce Collection, you may need to be part of a local club, work as a volunteer at a museum or simply collect books and memorabilia. When it comes to sports, the cheapest choice is TV, but let's face it, if sports is your life and you like baseball, then maybe a partial season of tickets is the way to go.
Out to Eat Drinks and Concerts. Look at how much extra money you have every month and decide how much you want to allocate towards going out, concerts and other entertainment. If your budget isn't big, then may pick a concert once every 3 months instead of a mediocre list of events every week. Or eat before going out and just have drinks. In the first year after bankruptcy, creativity is the key. The problem is friends and family who may have unreasonable expectations of your ability to entertain and spend money going out - this is the first time you will really see what the quality of those relationships are - after a frank discussion about what you will not be doing any more, you will see the true colors of your friends and learn how to navigate family politics.
C. Planning Items for the Future:
Take the amount of money that is discretionary every month and think about how you would like to spend it: General Saving, Saving for something specific, Education, Vacation, Saving for Kids, Saving for Retirement.
D. After the first year:
1) Look for a new job
2) Get a new career
3) Plan for education to get new career and more income.
4) Reduce Commute to Work
5) Improve Schooling and Reduce Cost through Public Schools that meet your children's needs
6) Purchase more reliable car with lower operating costs
7) Find Better Place to Live
8) Plan a Vacation
Look for a New Job: If you have been in the same job for years without any pay increase, maybe it's time to consider looking at whether your skills are worth more money elsewhere. This can help with making your budget looser and letting you explore new hobbies, interests and vacations. The typical jobseeker who is currently employed looks for 6-12 months for a better job. It never hurts to look around.
Get a New Career: Before you lose your job, get downsized, get laid off or suffer cutbacks or furloughs at work, it's time to look at whether you are working in the right industry. For example, the printing industry has suffered continuous declines for at least 10 years as many types of information are now delivered digitally. A print set up person who has a good grasp of graphic layout should maybe head to a different firm to do web design set up or advertising layouts which may not be printed but use the same set of skills. Bottom line, if you are in a dying industry - they usually don't come back and it is best to switch industries before you are laid off.
Plan Education for a new career - it sounds easy, but the typical graduate degree earned while working takes 5 years. Bottom line, if you think you need more education, to make the next step in your career and continue to have increased income, you need to start now to have the education you need in five years. Choosing a school is dependent upon net cost, logistics and your schedule.
Reduce the commute to work. Reducing your commute to work can sometimes save thousands of dollars per year and save sometimes 10 hours a week in wasted time. Bottom line - if you work in an industry whee a company is located closer to home, it may take 6 months to a year to make the change. It is good to start the planning now.
Reduce the Cost of Schooling - Sometimes you have to break a comfortable habit. If you have been at a private school for years, but it contributed towards your bankruptcy, then you have to recognize the fact that you may not be able to send your child to private school. Sometimes Scholarship and Grants can help, but if you need to reduce your budget now to stay out of financial trouble, you should put other concerns aside and do what you need to do.
Purchasing a Reliable Car - Many times, the least costly car isn't the one with the lower gas mileage or one that is a car that everybody thinks is great. What's important is reducing the overall cost which includes: Maintenance, Gas, Oil and Insurance. To do this right, you should look over all of your maintenance costs for the last year, call your insurance company to see how your existing and proposed car rate for premiums and compare mileage costs.
Find a Better Place to Live: Finding a better place to live should include the following factors: 1) Proximity to your job 2) School System Quality if you have children 3) Functionality and Space of the New Residence 4) Overall Cost versus how much you to spend in your budget. For most people leaving bankruptcy, you must wait 3 years after your house is sold in foreclosure to qualify for a FHA First Time Homebuyer Loan.
Plan a Vacation: The key to a long happy life is making activities outside of work the focus and making work an enjoyable means to an end. Planning frequent high quality vacations with an emphasis on moderate cost and high quality activities is the key. The best vacations are always planned months in advance and often include friends and family. Good planning is free. Great Value is Priceless.
For more assistance with your post bankruptcy situation, please call: 877-GO-GO-NLO or Email our firm at dcnelson@nelsonlawoffice.com
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