Avoiding Bankruptcy - Practicing money smarts requires discipline

MAXWELL AIR FORCE BASE, AL -- As time progresses, the purchasing power of the dollar continues to decrease. As the cost of goods and services continue to increase, financial struggles may start to become inevitable for some.

However, even with the value of money decreasing, proper financial management tactics can help to prevent dire financial woes, the most common being bankruptcy.

According to Fran Jackson, personal financial readiness consultant at the Airmen and Family and Readiness Center, poor money management is the main culprit when military members are forced to file for bankruptcy.

"Living a lifestyle on credit is a prime example of poor money management," said Jackson. "Sometimes, Airmen forget that when you make purchases with a credit card, that money, technically, is not yours. The money belongs to the creditor. Not only do you have to pay back the original borrowed or credit amount, you also have to pay back the accruing interest as well."

Typical interest rates on a credit card are between 12.99 percent and 16.99 percent. However, rates can quickly increase to 29.99 percent if a repayment date is missed, she said.

According to Jackson, divorce is another major reason why service members are forced into filing for bankruptcy. "Divorce creates a financial strain for both parties. The legal fees alone can force someone to file once the divorce is complete," she said.
"In addition to the financial strain created by divorce, Air Force regulations say that child support and alimony must be paid. Those two things, as well, can push someone into filing for bankruptcy."

Jackson also mentioned that a more common issue that drives people into bankruptcy is a home mortgage. She states that while paying a mortgage on a house is a good thing because it helps build a service member's credit score, it can become troublesome if that service member receives an assignment to another state.

"They are now forced to rent a home in their new state while still paying a mortgage at their previous residence," Jackson said.
"If service members know that they may possibly be moving soon, that service member should try to find a renter for their home as soon as possible to ease their financial burden."

There are many preventive strategies that service members can use to help avoid bankruptcy.

According to Jackson, the financial tactics that help to prevent bankruptcy require proper money management and self-discipline.

"Learning to cut back and live within your means is the most difficult tactic, but also the most beneficial," said Jackson. "Distinguishing your wants and needs is the biggest challenge for people that I've noticed."

She suggests that people ask themselves if an item they'd like to purchase will improve their quality of life. "If the answer is no, or you are unsure, hold on to that money and put it away; you may need it for the future," she said.

Chapter 7 Bankruptcy overview
According to Fran Jackson, personal financial readiness consultant at the Airmen and Family Readiness Center, the most common form of bankruptcy within the military is Chapter 7.

Chapter 7 bankruptcy, also known as straight bankruptcy, involves the liquidation of a person's non-exempt assets.

Exempt assets include vehicles, work-related tools and basic household furnishings. Exemptions play a vital role in Chapter 7 bankruptcy.

All nonexempt items are valued by a court- appointed trustee. Once the trustee decides what nonexempt items are valuable, they will then sell those items to creditors to settle the debts.

Chapter 7 bankruptcy provides a fresh start for individuals, but it does not eliminate all previous debt. Child support, alimony and student loans must still be repaid.
Obtaining new lines of credit after filing for Chapter 7 bankruptcy will not be too difficult, as there are lenders who specialize in offering loans to people recovering from bankruptcy.

Although Chapter 7 bankruptcy may provide relief and peace of mind to someone sinking into non-repayable debt, it can only be filed again after a six-year period.