When you hear the word “bankruptcy,” most of the time your thoughts turn to large scale companies or retailers that have no choice but to shut the doors and declare to fight (or re open) another day.
But what about bankruptcy as it pertains to an individual, couple or family as far as your financial planning and freedom or lack thereof.
Avoiding bankruptcy is unquestionably paramount, but when that word starts to surface in the household, chances are you’ve missed the warning signs and it’s too late to turn back from a road you ultimately didn’t want to travel.
One huge red flag that you’re headed down the wrong path is taking a moment to calculate your debt to income ratio on a monthly basis or taking into consideration your assets versus how much you owe that isn’t yours.
First, the monthly ratio is simple to figure out and is essentially how you’re judged by creditors and anyone else in line to lend you money. Your debt to income ratio on a monthly basis should be somewhere in the 30% to 70% ratio, respectively, at best. You also want to pay attention to your entire debt, minus the house and the car. This is more about checking into unsecured debt like your credit cards. If you have about $10,000 in your savings account and only a few thousand in your retirement account but are sporting double that in credit card debt, you should start coming up with a game plan to start paying it off and eliminating some expenses from your budget that can get cut.
Bankruptcy also might be chasing you down if you find yourself starting to miss payments one month after another. Missing a payment doesn’t just add a negative to your credit score but also is a huge sign that you are living beyond your means and eventually might not be able to pay your debt consistently.
In addition to missing payments, you might be at the point where creditors are starting to call your home and seeking out a debt consolidation company isn’t exactly going as planned.
Keep in mind that it doesn’t have to end this way when it comes to your finances as it relates to bankruptcy. It just happened this way because you were most likely careless with your spending but didn’t take note of bad habits that eventually grew into having to raise the white flag on your finances.