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A Judge’s View in Avoiding Bankruptcy Traps

Bankruptcy filings usually occur after months, if not years of financial stress and uncertainty. Phones continually ring with debt collectors on the other end. Mailboxes fill up with final notices, garnishment warnings, and lawsuits.

Seeking any type of advice seems embarrassing as it will reveal the financial plight. While many presume irresponsibility in handling credit, a Chapter 7 or Chapter 11 filing often is the result of an unexpected life-changing event. Job loss, divorce, illness, or any combination of those factors often play a significant role in consumers not being able to make ends meet.

The top factors that result in bankruptcy include:

  • Credit cards (42%)
  • Car repairs (29%)
  • Medical bills (27%)
  • Excessive shopping and eating at restaurants (22%)

For those who fear judgment, the advice of an actual judge is a good start.

While many claims to be bankruptcy experts, few can match the in-depth knowledge possessed by a bankruptcy judge. After a dozen years serving as the chief judge of New York’s Northern District Bankruptcy Court, the Hon. Margaret Cangilos-Ruiz has come to possess a unique point of view.

In an interview with MarketWatch, she points to certain pressure points that, if avoided, can prevent a visit to a bankruptcy courtroom.

Credit Card Care

While easier said than done, carrying a credit card balance is ill-advised. The goal of having a credit card is not only to pay on time but also the balance of all bills. Falling behind happens. Proactive steps in making arrangements with the cardholder can reduce late fees and minimize penalties that only increased the debt load.

Credit Score Awareness

Knowledge is power when it comes to continuous monitoring of a credit score. The higher the FICO, the better the interest rates, an important factor when considering borrowing money for a major expenditure.

Spending Wants Vs. Needs

For many consumers, a reality check can make a difference. Documenting every single expense a week increases awareness of where the money is going and should go. Designating a small amount to savings or a 401(k) helps prepare for an uncertain short-term or long-term future.

A Declaration Of Financial Independence

Handwriting expenses on a piece of paper is one thing. An actual household budget is quite another. Overcoming that hesitation can lead to smarter spending with coupons, rebates, and other incentives being the norm, not the exception.