Bankruptcy has many causes. You may become divorced and suddenly be challenged to maintain a family home and other expenses that overwhelm your budget. An accident that damages your ability to work and earn an income can leave you unable to pay many existing bills.
And there are medical bills, which for many, even with some healthcare insurance, can pile up and cause you to fall further and further behind with credit card bills and your mortgage. Student loans are another source of debt that can eat away at your ability to remain current with all of your other bills.
But combined with all of these issues is general spending habits. Credit cards are easy to get, but can become difficult to afford. The debt can accumulate so gradually that you may not even notice it is becoming critical until one day a check bounces or the phone rings with a debt collector on the other end.
This is where a Chapter 13 bankruptcy may help beyond simply discharging your debts. Because the central element of a Chapter 13 is the repayment plan, which is essentially a budget of all of your income and expenses, it can help you develop spending habits that can serve you long after you have completed the bankruptcy.
Even wealthy athletes can learn this lesson, as NFL quarterback Michal Vick has found out during his bankruptcy. He has almost paid off all of his $18 million debt that he had in the bankruptcy. He had to live on a $300,000 budget, which seems extravagant, but given that he averaged about $8 million a year, showed considerable restraint.
He noted that he had never lived on a budget prior to his bankruptcy and he grew to recognize that he did not need “a new boat” or some other nonessential items. While most of us will never see income at the level of a NFL quarterback, learning to organize our finances with a budget can be a valuable skill that can help prevent the need for filing a bankruptcy.
Nbcsports.com, “Michael Vick has nearly paid off his bankruptcy debt,” Darin Gantt, December 18, 2014