Budget BEFORE you file!

[Amadan]

If you are like us, and so many others, filing for Bankruptcy was the last ditch effort to hold onto your sanity. But once you get to that point there is so much damage that it leaves you spinning out of control. We jumped the gun after only 2 months of missed payments, scared to death of being sued, driven crazy by the phone calls. They were calling home, work, and had just started calling relatives. My Mom is 65, she doesnt need to be harrassed over my finances.

So like any good citizen on the brink of financial ruin, we used out tax return money to get a lawyer who could help us file. Unfortunately we only qualified for a 5 year Chapter 13. There were many sleepless nights and variables that got us to that point. We were close enough to a Chapter 7 to smell it, but no matter how the numbers rolled we never got closer than $600/mo. (Chapter 7 will NOT let you calculate 401k as part of your monthly expenses).

So we had 10 sleepless nights from retaining a lawyer until filing. We had come up with a plan that seemed at the time reasonable. But then we started working on our budget.

The thing is, when you are starting the whole bankruptcy process you are most likely already going out of your mind. The stress is enormous. For me, I could neither eat nor sleep for about 2 weeks straight. My blood pressure has skyrocketed to the point that I wonder if my life insurance policy will be exempt for my wife and kids to keep. The point is, you do not think clearly, rationally. You have to come up with a monthly "average" of projected expenses. Well, things change month to month. The summers for most families are a lot more expensive. Higher electric bills, higher daycare, ect. You can "average" those costs over the course of the year, but you wont have a whole year to save up for them. Summer is right around the corner! Then panic sets in again. "What are we going to do?!"

Unfortunately is too late for "What are we going to do?!". Now, hindsight is 20/20. Hopefully our experience can help others by asking "What should we have done?"

What we should have done was really take a good hard look at our budget FIRST. As soon as we realized things were going south. Even if we had ignored the other signs and gotten to the no turning back point we should have done it then. Even if it was the day before retaining the lawyer. Things were still stressful then, but a lot less than johnny-on-the-spot coming up with a budget for the next 5 years. Its hard to think of everything, and you can pretty much plan on forgetting about anything you leave off the list.


Here is an example of some of the expenses we used for our schedule J:
Mortgage Payment
Cellphone
Home phone
Internet & Cable
Burgler Alarm
Utilities (variable, higher in the summer)
Car Insurance (this just went up, due to buying a new car, by $50/mo)
Life Insurance
Homeowners Assoc Dues (forgot to add this, $750 annual expense!)
Tollway Fees
Food (claiming above IRS standards due to health issues)
401k
Health Insurance
Health out of pocket (variable, we probably claimed too low)
Child Care (BIG MISTAKE, underestimated based on "current" monthly payments. Did not take into account summer month increases)
Clothing
Entertainment
Car Maintainence / tags / inspections
Gas (probably should have claimed more)
Pet Care
School Lunches
School Supplies
Household Supplies
Dry Cleaning
Home Maintainence
Gifts / Holiday spending (only listed $20/mo. $240 for a years worth of christmas and birthdays. We werent thinking rationally by this point)

The biggest problem is that we lowballed all these numbers. We had no idea what our real cost was. If we had taken the time beforehand to look at all our grocery store receipts we would have known we spend about $230/week. Thats about $996, not the $800 we guessed. Well, in a chapter 13 that extra $196/month we wont have to spend. The trustee gets it. The same with childcare expenses. Ect. Ect. So be absolutely certain of your expenses before you take this leap. Otherwise you will suffer the consequences. For five long years.

The other problem we faced was variable income. I typically get 4-5 hours overtime a week, but not so much lately. But on my six month lookback we had half the office out with the flu. I worked 30+ hours of overtime for 2 weeks in a row. Made for a heck of a month, and basically covered our christmas and caught us up on everythign else. Now I get punished for that by being expected to bring home that kind of overtime every year. If we had just waited a few months, instead of being so scared the creditors were coming to take everything, we might have done better.

Now hopefully others will add suggestions to this list so that those who follow may fare better.

[momofthree]

Great advice. I absolutely agree. I think you need to not only set a budget, but live within that budget for several months before filing.

Month #1, keep track of every single penny that you spend. You put 50c in the little horsie ride for the kiddos outside the grocery store--write it down. Keep track of everything. Then sit down at the end of the month and analyze. How much are needs, how much are wants, how much is just waste?

Just because you WERE spending $300/wk at the grocery store doesn't mean you need to continue buying a cartload of sodas, frozen dinners, and snacks every month. Now, don't get me wrong, put the maximum you can on your petition plan, but cutting back once the plan is in effect means you can save money for a rainy day or a vacation. If you can save $50/wk on groceries, that's $200 a month that you can set aside. BTW, this is easily done with coupons & shopping sales. I bought $81.13 of groceries at Safeway for $10.23 the other day--and $2.40 of that was a soda can deposit that I'll get back upon recycling!

Also, I find that envelope budgeting is a lifesaver! I have an envie for timeshare fees and car tags. Putting $40 into an envelope each month is much easier than trying to come up with $250 the month something is due! Write it into your budget every month and set it aside. Some people do this with computer software, but for me, if it's still in my bank account, I'll spend it, so I put it aside into an envelope. Get to know your weaknesses so that you can come up with strategies to overcome them (like me and the envelopes, lol). I also find that when I limit myself to cash, I spend less than when I'm swiping an ATM card. It sounds silly, but it's true. When you can actually SEE the cash dwindling (rather than knowing in your mind that the bank account is getting low), you adjust your spending more easily. At least I do. According to Dave Ramsey, when a person pays with plastic rather than cash (the green paper stuff), they spend an average of 18% more! I know this certainly applies to me. I don't impulse buy when I have a limited amount of cash on hand...

[keepinitreal]

Amadan, thanks so much for thinking of your fellow forum members and relating your experiences. I'm sure this will help others who are in the planning stages.

[helpmeout]

I think that this is a good thread for both Chapter 7 and Chapter 13. And it's something that one should do when deciding to keep an asset or not. For me, looking at a realistic budget really did show me that I simply can't keep my house and pay for childcare. I am years away from not needing childcare, so the house is going.

And when budgeting, keep the emotions out of it. When I was in the middle of a divorce, I really wanted to keep the house. So I let my emotions rule and came up with a budget that simply wasn't going to work to justify keeping the house.

[ednasouth]

EXCELLENT Advice Amadam. I'm going through the same thing right now. I was comfortable with my original plan proposed, but it was rejected due to lack of babysitting receipts. We use teenage children of friends/neighbors and never thought of receipts and don't want to ask now since we are trying to keep this as private as possible. The TT will allow for half that amount so we are modifying our plan to add some documented expenses that wasn't included on the original plan (alarm system, school lunches, school supplies expenses). All these things ADD UP FAST! You are so overwhelmed at first it is easy to overlook these things.

[Nanzee]

The only thing we have going for us is we were not able to use our credit cards for months anyway before we filed because they were maxed out. So I don't have the shock factor of not having them to fall back on. But it is true it is impossible, completely, to think of everything you have to factor in. My 2nd confirmation meeting is this Thursday, and if the payment stays the same, I am pretty sure we will be okay, but we all know how much stuff comes up. Just this past two weeks we had roof damage from a storm, and had to change a kitchen faucet, about $400.00 in unexpected expenses. We were able to have qualified friends to fix the problems, and saved money that way, but still, almost anything can blow your budget.

[sheilaE]

Thank you very much for posted this. We've retained our Lawyer, but we're trying to hold off for as long as we can before filing. The bad part about holding off is the stress of not knowing what our payment is going to be. It's very overwhelming plus the phone NEVER stops ringing. We really haven't had a chance to put some extra $$ aside for any emergency that may arise, so we're hoping to get to do that before giving it to the trustee. According to Chase, they are getting ready to take action, but we are hopeful that taking action means it'll still take them a few months.
We are trying to save receipts, but we're scared to spend money for fear that towards the end of the month we'll need gas for the car and won't have and money. When we ran short before we always charged it. I'm afraid it's going to look like we can make it on a small budget because of this. I just don't want to be strapped for cash every single month for 5 long years-that is our biggest fear.
Will we have to show receipts for clothing, school supplies, pet care & entertainment? Will the Trustee fight us on the dollar amount without receipts? School is getting ready to end, but come August when it starts back up again, the kids will be needing tons of stuff! Also, is there a certain dollar amount that is allowed for presents/gifts? We have 2 children with birthdays coming up this summer. And what about Christmas? What do they allow you to spend anything? You wrote that you listed $20.00 per month. Do you think they would allow a family $50.00 per month? I mean, I would just save the extra cash so we could buy the kids Christmas presents.
Thanks again for all the wonderful information! I'm learning so very much from this site!

[ednasouth]

I've been wondering the same thing about some of these topics. We are working on my plan modifications to add a couple of overlooked expenses, one includes school supplies and another school lunches. The TT will allow $75/month for supplies for 2 children. Has anyone had to show receipts to have "reasonable" school supplies included as an expense? From what I understand mine may allow this much undocumented. What about school lunches? I have carbon copies of most of the checks and where they show they cleared on my bank statements. I guess I should send those to the PL. I'm just ready to get to a payment I'm comfortable with and get it confirmed, so I can go on with my life. This has been a lot of stress trying to remember every expense, wondering what I all I will need receipts for, etc. This site, especially the contributors, has been a GREAT help.

[contemplate]

Amadan,
Thank you so much for your post! I am sorry for the regrets you have, and really appreciate your kindness in advising others. We have been contemplating since December and this thread is so comforting! I hope many others will share advise. Of course I also hope the next 5 years is livable for you & flies by!

[Flamingo]

It took us a year to file after the layoff which caused a 70% drop in our household income. We did everything possible not to file hoping for a replacement job at or near the lost income. Since it was during the Tech Bust period earlier this decade, nothing short of moving overseas would have provided that. During that period we went more into debt trying not to file by robbing Peter to pay Paul until the banks caught on, raised the rates and Peter and Paul became broke and couldn't support one another anymore...It's the lifestyle change that gets everyone who goes into Chapter 13...if you can make major changes to your fabulous lifestyle prior to filing, do a complete turnaround and actually learn how to budget (budget? who did that before with all that money?), one will get successfully through a 5 year Chapter 13 plan and come out different people. I have always stated for years in this forum that going through a Chapter 13 Plan is the best budget teacher in the world.

[Amadan]

It seemed like forever at the time, but now we are near the finish line!

[justbroke]

It seemed like forever at the time, but now we are near the finish line!

Holy mackerel! It has been a long road and you've been so quiet. Congratulations!

You're going to need to start a new thread once you receive your discharge!

[dmc-2008]

Good for you! How did you fare!? Did your payment ever get raised or any other modifications?

[jmac]

I say ask for the sky, let the trustee and lawyer argue if the amount is too much, another huge one is taxes make sure you're breaking even, too much trustee gets it... not enough, you're burdened with a extra bill. Gas can swing 2 bucks a gallon make sure you get the max on this. I think the biggest thing is a new car if you can swing it, if not trustte will get that money and you will be left with a car that may not make it 5 years, expensive repair bills.