| CAN YOU PAY YOUR DEBTS?
One of the surest ways to determine whether you should consider filing
a bankruptcy is to determine whether you can pay off your debts in a 3
or 4 year period of time. If you cannot, consider whether you will ever
be able to meet your financial goals while still carrying your current
For example, assume you have $15,000 in consumer debts (credit
cards, store charges, finance companies). Exclude your payments on
your car (you need a car) and on your house, if you own one (you need
a place to live). Payments on car and homes are somewhat "fixed"
debts. Most people wish to keep these assets and will come out of
bankruptcy still making payments on their cars and houses. A
bankruptcy does not usually affect these debts unless you want to give
back the car or home (which, if you are current, is generally your
Now that you have added up your "consumer debt," add in any debts to
the IRS and student loans. In this example, I am assuming that all of
these debts add up to $20,000.
Now add a 20% interest rate to this debt (although interest rates vary -
some will be higher and some will be lower). If you make the minimum
payments totaling $400.00 per month, it will take you over 100 months
or 8 years to pay off the debt. If you make payments totalling $500 per
month, it will take you five and one-half years to pay off the debt.
To pay this amount off over 3 years (our target period for looking
seriously at a bankruptcy), you would have to make monthly payments
of over $700. Do you have $700.00 per month to effectively pay off
your debt of $20,000 in a realistic time period?
PLEASE NOTE: ALL OF THESE CALCULATIONS WERE DONE
WITHOUT LATE CHARGES, OVER THE LIMIT CHARGES, AND
THOSE SURPRISE INCREASES IN INTEREST RATES WE ALL
FIND ON OUR CREDIT STATEMENTS.
Although you, like all of my clients, want to avoid bankruptcy, BE
REALISTIC. DO THE MATH. CAN YOU PAY YOUR DEBTS OFF
OVER A REASONABLE AMOUNT OF TIME?
|LAW OFFICES OF JENNIFER L. HOLLAND