Downsizing to Avoid Bankruptcy

Reducing your housing expense is one of the best ways to quickly reduce your debt. If you rent your home this is much easier than if you own one because you can simply move into cheaper housing. In either scenario, adding a roommate can help to subsidize either your rent or mortgage payment. On the other hand, if you owe a lot more on your home than its fair market value, a bankruptcy can be the perfect opportunity to walk away from negative equity. You could also consider renting out the home you own while renting something with a smaller rent payment than your mortgage.

If you have two or more cars in your family, try to eliminate the car or cars with the highest monthly payment. At least in the short-run, many families can get by with only one vehicle. Even if both a husband and wife are working, carpooling can be a solution to getting everyone to work. It’s not only the car payment you are saving, but also the cost of insuring the additional vehicle as well as maintenance costs for wear and tear on tires, oil changes, etc.

Another downsizing tactic is to get rid of your toys (boats, jet skis and ATVs). Note: You need to talk to an attorney if you are on the verge of filing for bankruptcy. There is a look-back period for asset transfers if you file bankruptcy too close in time to the sale of an asset. Sometimes people save enough expense and net enough gain to pay off other items affecting their debt-to- income ratio.

In addition to trying to minimize your fixed debt, you can create a budget for your daily living expenses and try to cut out luxuries such as eating out, dry cleaning, maid service, laundry service and other things we tend to take for granted. Start shopping at the dollar store instead of the

normal grocery store for some of your staples. Remember, this is not necessarily a permanent down-grade to your standard of living. Make a game out of seeing how little money you can spend on daily living expenses and entertainment. If you have to charge something on a credit card consider that a sign that you cannot afford the item. We all rationalize the use of credit cards and fall victim to the creative marketing of banks.

Finally, try to “upsize” your income. Get a second job if possible while eliminating your debts and expenses at the same time. Do whatever you have to do to change your bottom line.