Bankruptcy allows thousands of Georgians each year to overcome suffocating debt loads, but it isn’t for everybody. There are certain steps you can take to avoid having to file a Chapter 7 or Chapter 13 bankruptcy, and then there are other situations in which it is completely unavoidable.  Hopefully this very condensed personal financial guide will give you the knowledge needed to avoid financial disaster.

1. Don’t buy “the biggest house you can afford”:  We’ve all heard this one.  Buy the biggest house you can afford because your income will inevitably grow to match the outrageous mortgage.  Terrible advice.  Always make big financial decisions with the worst-case scenario in mind.  What if I lose my job? What if my spouse loses his or her job? What if – surprise! – the value of my home plummets or the variable interest rate changes to make my payments more than I can afford? These are all questions you should be asking yourself before what is probably the biggest purchase of your life.  Having your dream home is one thing, but having it at 25 years old is a bit unrealistic.  As a rule of thumb, your mortgage payment should not total more than 25% to 30% of your take-home pay. Any more and you run the risk of becoming a slave to your house.

2. Contribute to an Emergency Fund:  This is probably the most boring piece of financial advise I’m going to give, but it’s an absolute necessity if you want to weather life’s little storms.  Dave Ramsey’s recommendation of $1,000 is just a starting point. Ideally, I recommend having at least 3 months of living expenses stashed away in a money market account, savings account, or Roth IRA (you can withdraw contribution with no penalty) to insulate your family from the consequences of losing your job.  Also, having an emergency fund that you only touch during true emergencies will allow you to handle an unexpected expense without resorting to a credit card – which is how the entire downward decent into financial ruin typically begins.

3. Get Adequate Medical and Disability Insurance:  Medical debt is the second most common reason people file bankruptcy. Just like your Cable TV, gym membership, or cell phone , medical insurance is a monthly expense that everyone should budget for. I realize that medical insurance, if not subsidized through your employer, can be extremely expensive, but my advice is to purchase a high-deductible plan and contribute a little money each month to a Health Savings Account, an account in which your investments will grow tax-free and your withdrawals will be tax-free if used for a qualified medical expense. A good high-deductible plan can be found for less than $100/month for a family of four and will protect against catastrophic illness or injury. Also, disability insurance is ALWAYS a must in my book.  Health insurance may pay for the medical procedures required to recover, but disability insurance will provide a source of income during your down-time.

4. Stop trying to impress your neighbors: Another obvious piece of advice, but one that will always be ignored. Trying to squeeze your finances to make sure your family is in a house that will impress the parents of your kids’ friends will ruin you financially. I’ve seen it happen countless times. Also, if you make $50,000 per year, you cannot afford a $30,000 car. It’s that simple.  Bankruptcy is often a great option for people who want to keep their cars, as the law provides certain protections to consumers that will result in lower car payments that you can easily afford.  But for others, sometimes the car payment is still not realistic given their income levels, so it has to be surrendered, even after filing bankruptcy.

5. Pay your credit cards off each month:  Credit cards are a tool of convenience, but they can easily lead to out of control spending. Swiping that card is a lot easier than handing over hard-earned cash, and funding a lifestyle outside your means will guarantee a trip to my Atlanta bankruptcy office.  If you gotta have that $3,000 72-inch LED, do what your grandparents used to do – save for it.

6. Don’t co-sign on big purchases:  Look, I understand that many people want to lend their credit score to a friend or family member in need, but by signing that piece of paper promising to repay whatever the borrow does not, you put your entire financial future in another person’s less capable hands – a person who has likely defaulted on payments in the past and has a poor credit score as a result.  Having your financial future hinge on whether another person may suffer an unexpected expense resulting in a car repossession or house foreclosure is not a wise move.  It can be difficult to tell a loved one “no”, but your financial health may depend on it.