By: Jeena Cho, San Francisco Bankruptcy Attorney
If you’ve been watching the news, you probably saw stories about Greece and its austerity measures. Austerity describes government policies to reduce budget deficits. Oftentimes, austerity measures are necessary in personal bankruptcy as well. We are creatures of habits, so most changes are painful. Budget cuts are a particularly painful type of change.
When I meet with a potential bankruptcy client, a common question I get is “do I have to give up _________.” This can be anything from bad habits like smoking to non-essential spendings like vacations. The answer to whether you can keep any single line item on your budget depends on several factors.
Can You Afford It?
The first obvious rule is that any budget item you want to keep should be affordable. This applies to homes, cars, utilities such as phone, cable and internet, food, transportation, etc. Frequently, people subsidize their income with credit. Without credit, you may find yourself coming up short each month. If this is the case, it’s time to take a hard look at your budget and ask yourself “can I afford this?”
Another helpful analysis may be to ask yourself “is this something I need or something I want?”
Reasonable and Necessary
The basic rule in bankruptcy is that all of your expenses must be “reasonable and necessary.” This is a case-by-case analysis, taking into consideration the client’s individual circumstances.
For example, a $600 per month payment for a BMW may be “reasonable and necessary” for a real estate agent where it’s important to portray a certain image to his or her clients. However, if you’re earning $40,000 or there’s no justification for why you need a BMW, this would not be considered “reasonable and necessary.”
Similarly, if you’re a busy working professional with young children, it may be necessary to pay for full-time child care. Not so much if you’re not working and can care for the kids yourself.
Is it fair?
Bankruptcy is premised on an idea that honest but unfortunate debtors should be afforded an opportunity to get a “fresh start.” Tied to this idea is that you should be required to pay back your fair share of the debt if you can afford it. This doesn’t mean that you’ll be required to eat ramen noodle for five years to repay your creditors. It does mean you probably won’t be able to dine out at every meal.
The information contained in this post is informational only and not substitute for legal advice. Please consult a San Francisco Bankruptcy Attorney about your circumstances.
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