Claiming bankruptcy may be your best option in some situations. It’s no secret that going bankrupt is a highly emotional decision for most people.  The thing to remember is that if you’re even considering bankruptcy, then you’re financial hot water.  That means you need to set your emotions aside and treat the process as a business decision.

Get out your calculator and a sheet of paper, or use a spreadsheet program like Excel.  You’re going to make a list of all of your income and all of your expenses.  Under income, list your monthly salary and any business income you have.  List child support and alimony, as well as unemployment income.  If you have income that only occurs once a year, such as income tax refunds, then divide the amount by 12 to give you a monthly average.

Now list your monthly expenses.  List all of your secured debt payments, which are loans where the lender has the right to repossess the collateral if you don’t pay.  These usually include your home and your car.  Skip the unsecured debt like credit cards for now.  Budget for necessities like food, gas, telephone, internet service, insurance on your home and vehicle, health insurance, medical costs not covered by insurance.  Include any child support or alimony payments.  Don’t forget to build in a modest clothing and entertainment budget, especially if you have children.  Skimping $10 a week on Netflix and ice cream isn’t going to help you avoid bankruptcy, so don’t let guilt overwhelm your common sense.

Subtract your monthly expenses from your monthly income and see how much money you have left over.  Now find a debt calculator that will amortize your credit card debt payments, that is, figure a monthly payment that includes interest.  Your spreadsheet program might include one, or you can find one online.  One at a time, go through each credit card, unsecured loan, and medical bill, and calculate the monthly payment it will take to pay it off in 4-1/2 years.  The logic is that a Chapter 13 bankruptcy plan takes five years to pay off, plus your attorney and the bankruptcy trustee will charge you fees for the process.

If your monthly payments on your unsecured debt are more than your left over income each month, your best bet is claiming bankruptcy.  Although this fact might be difficult for you to accept, acknowledging the seriousness of the trouble you’re in is the first step toward a better future for you and your family.