By Keith Purtell
Attorney Gerald Miller, Chapter 7 trustee for the Oklahoma Eastern District, has one basic rule to avoid bankruptcy.
“Don’t use credit cards,” he said. “The only thing consumers can do is don’t use credit. Educate themselves on how long it takes to pay off a credit card debt, which currently is about 28 years if you make the minimum monthly payment. If you can’t afford to pay for something, don’t buy it; go without.”
Miller said it’s not fair to pass judgment on people filing bankruptcy. Some big expenditures are the result of human nature and unforeseen circumstances.
“People buy things when times are good and they have income,” he said. “They’re getting sued because they can’t make their mortgage payment, or they bought a car on credit and can’t make that $400 or $500 monthly payment, and it gets repossessed. What can they do?”
Unwise spending choices are only about 20 percent of the cases Miller see. The rest are filing because they don’t have any choice about it.
Medical bills can mount quickly without health insurance to offset, at the least, some of the costs incurred.
“Having health insurance avoids bankruptcy, but you don’t have it if you can’t afford it,” he said. “If Congress really wanted to avoid bankruptcy, we would have reasonable health care. And we’d never get divorced, people would never die or get laid off. There are certain things you cannot help. You cannot help if you get sick and you have no health insurance and you go to the hospital for a day or two and you owe $45,000. You can’t help that.”
Miller said the best advice he can offer about what people can voluntarily control is that they live within their means, and don’t use credit cards unless you understand how they work.
“A lot of people don’t realize what credit cards are,” he said. “What happened was, when Visa and Mastercard came out, they wanted a source of income, and they thought, ‘We’ll try giving unsecured lines of credit to consumers.’ It was an experiment. They made so much money the first year that the others sort of followed along.”
Miller said that caused consumer credit to go from virtually zero to billions of dollars. And following that upward trend line was a rise in the number of bankruptcies filed each year.
“A lot of people would hesitate if you said, ‘Go down to the local bank and borrow $5,000 or $6,000 on a signature note at 28 or 32 percent interest,’” he said. “They’d say you were crazy. But that’s what they do each month when they use a credit card. That’s all it is; an unsecured line of credit with a bank at an extremely high rate of interest.”
Muskogee attorney William Mark Bonney, a Chapter 13 trustee, put his anti-bankruptcy advice even more simply.
“Anybody that is trying to borrow their way out of debt is going to fail,” he said. “If someone is looking at borrowing money from one creditor to pay another creditor, they need to talk to Consumer Credit Counseling. People don’t set aside a prudent amount for a rainy day or for savings.”
Ten tips to avoid bankruptcy
1. When possible, always pay with cash. Some people have a bad habit of paying for things with credit cards and then not paying close enough attention to how much of a bill they’ve rung up. When they finally look at their statement, they find they’ve exceeded their budget.
2. Make a budget, and stay within your spending limits. It’s easy to go overboard with your spending if you’re not careful. Most of the time, we don’t have an idea of our total expenses for each month in our heads when we make a purchase. By making a budget, you can determine exactly how much cash you have to spare.
3. When you see the newest gadget or a stylish new piece of clothing, it can be very tempting to buy it straight away. This is known as impulse buying, and it is an easy way to get yourself into financial trouble. We all like to have new things, but it’s important to stick to your budget.
4. Stay away from any offers that give you the opportunity to “buy now and pay later” or any so-called “interest-free financing” deals. While they seem attractive, they are still just delayed debt and can cause trouble.
5. Shop around. Do your research on an item before you make any major purchases. There are two reasons for this: first of all, you can often find a better deal with a little legwork. Secondly, you might find that an item you thought you needed is frivolous, or that there are more practical purchases you could be making.
6. When you go out shopping, don’t bring any credit or debit cards. Just bring an amount of cash that works with your budget. That way, you can’t possibly go over your budget, and you’ll learn how to shop smart.
7. Keep a close eye on your bank statements. Assuming that you have access to online bank statements, it may be a good idea to check your balance daily to ensure you don’t overdraw and get charged for it.
8. When it comes to borrowing money, make sure you choose the lender with the best interest rate. There may be a lot of other attractive perks offered by some companies, but high interest is any easy way to end up buried in debt.
9. When you are paying on a credit card, always pay more than the minimum. In many cases, the minimum payment is barely enough to cover the interest on an account.
10. If you have the option, consider transferring high balances to a card with a lower interest rates.
Source: Bankruptcy-lawyer-directory.com
