Making Your Ends Meet

Categories: Bankruptcy Law Overview, Chapter 13, Chapter 7, Debt Collections

How do you make your ends meet? Do you rob Peter to pay Paul? That is, to use one credit card to make the minimum Budget words, American banknotes and calculatorpayment on another? Do you rotate which debts get paid one month to the next? Katie Porter (@MsKatiePorter) recently reported on a few studies and how lower income families manage debt as compared to middle income folks. Her article entitled, Robbing Peter is a review of several studies she read, which makes it a good read. So, how do you make ends meet? I call it a budget and getting off the cycle of debt.

Let’s look at this from a bankruptcy perspective.  Not that you’re going to file bankruptcy, but to see debt as I and the bankruptcy courts do. This viewpoint will give just another perspective on how you can prioritize your own household finances. We use the following hierarchy:

  1. Secured:  Debts with liens such as a mortgages (1st, 2nd, Home equity lines of credit) or car loans
  2. Unsecured Priority:  Income taxes, family support, child support obligations, student loans
  3. Unsecured Non-Priority:  credit cards, medical bills, payday loans, signature loans

We know that among the middle class for example, mortgage debt remains king of the heap, as it should be, if you want to keep your home.  However, the conversation should include discussing whether the home is an asset or liability; is the mortgage payment (principle, interest, taxes, insurance and maintenance) cheaper than rent; whether the house should be sold. Keeping your priorities in order of importance when creating and maintaining the household budget places a focus on the important things in life like food, clothing and shelter first; debt after. Making the decision to get out of debt is the first step.  From there, a budget is required.  After that, having a strategy that fits with your financial goals and within the time frame of those goals will help you decide what’s best for you.

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