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Chapter 3: Building and Sticking to a Budget
Book I
Taking
Charge
of Your
Finances
After reviewing your financial information, a bankruptcy attorney
can tell you whether you should file for bankruptcy and which type of
bankruptcy you can file: a Chapter 13 reorganization, which gives you
three to five years to pay your debts; or a Chapter 7 liquidation, which
wipes out most of your debts. (To be eligible to file a Chapter 7, you
must pass a federally required means test that takes into account your
income and your expenses.)
If you decide to file bankruptcy, the attorney will inform you that within
six months of doing so you must go to a court-approved credit counsel-
ing agency. The agency will make sure that you understand your alterna-
tives to bankruptcy and that there is no way that you can avoid having
to file. If the agency concludes that bankruptcy is your only option, it
will give you a certificate that you must provide to the bankruptcy attor-
ney. The certificate permits you to file for bankruptcy. Without it you
cannot pursue bankruptcy. For detailed explanations of your bankruptcy
options and the bankruptcy process, check out Personal Bankruptcy
Laws For Dummies, by James P. Caher and John M. Caher (Wiley).
Paying the Important Stuff If
You Can't Pay Everything
If you've cut your budget to the bare bones and you still can't afford to pay
all your debts and cover all your living expenses, you have to decide what
you will and won't pay. Here's how to prioritize:
Essential living expenses: Your essential living expenses belong at the
top of your "Bills to Pay" list, including putting bread on your table,
keeping a roof over your head, keeping your utilities on, and gassing
up your car if you need it to earn a living. However, make sure that you
have reduced those expenses as much as you possibly can.
Secured debts: Your secured debts also belong at the top of the list of
things to pay. Keep reading if you aren't sure what a secured debt is.
Certain unsecured debts: Some of your unsecured debts should take
priority over others. We go into detail in the upcoming section "Knowing
when to prioritize an unsecured debt."
