Is Bankruptcy for You?

Because I’m at home right now working freelance and looking for full time work, I have more time to watch tv (not that I actually watch it, but often I just leave the tv on in the background for the noise.) Slice tv keeps doing mini marathons of Till Debt Do Us Part, or so it seems. Every time I flip on that station, I see they’re showing 4 episodes in a row. I don’t mind, of course, because I love watching this show, and seeing people who are in worse financial situations than me.

In one of the episodes, Gail Vaz-Oxlade advised her clients to declare bankruptcy. It was the first time she’s ever done that, as typically she’s able to help the couples out of their situation and get them on the road to financial recovery. But this time there was no way around it. She crunched the numbers every which way and just couldn’t find a solution. So she advised them to declare bankruptcy.

This is something that a lot of people around the world are starting to do in increasing numbers. In the UK the numbers have increased quarter over quarter (up 8.8% between the 2nd and 3rd quarters of 2008). In Canada, the number of bankruptcies has increased 2.8% in one month (from Dec. 2008 to Jan. 2009), which is up 20% from the year before. That’s a lot of people who have just had to give up  on their financial situation.

I admit that the thought has crossed my mind every now and again, as I wonder if it would just be easier to declare bankruptcy and start over fresh. But then I remember that I think about doing it simply because I’m impatient. I want to be done paying off my debt NOW.

The funny thing is, there’s no real need for me to pull the bankruptcy trigger. And why is that? Because even though I’m currently unemployed (that is, not earning full-time money), I can still cover my debt payments. And do you know why? Because I’ve been budgeting for quite a while and had cut down on my variable spending to the point that the fact I’m not working full-time means that I’m not chewing through my emergency fund at a fast clip. I’m able to stretch out my money because I already know exactly how much I spend in my variable & fixed expenses every month. I was saving money in my emergency savings plan with that in mind. I knew that if I needed to use my emergency savings, that it would be able to sustain me properly, including my dept repayments. Add to it  my recent income tax refund, and I’m able to survive. I’m not “living large”, but then again, I wasn’t even when I was working full-time. I was being responsible with my money. I might not be paying more than the minimum payments on my debts, but I’m not defaulting entirely on those monthly payments. I’m buying myself time until I can earn enough money to start making more than the monthly payments again.

So that’s why I’m not giving up just yet and declaring personal bankruptcy. But your situation might be different, you might be forced to do that because you’re far beyond your emergency savings, because you had to deal with unforseen expenses (a health emergency, or unexpected housing breakdown.) For whatever reason you might have to just do it. And that’s okay. Just make sure you make the decision with all the facts. Make sure you understand the ramifications of your decision, but once you do, and it makes sense for you, then do it, take the plunge. It might be the best decision you ever make.

Reminder: I am not a financial expert, nor an expert in bankruptcy filing. If you’re thinking of declaring bankruptcy, please consult an expert.