The coronavirus crisis has impacted everyone in some way. The financial ramifications are far reaching. Many have had to use credit to survive lost income. Some have incurred medical bills as a result of illness. Others have had to miss payments on mortgages and car loans. Business owners are using personal assets to keep their businesses going. Once the immediate crisis has passed, how do you dig out of the hole?
The first step is to take an inventory of your debt. List every debt that you owe and how much you owe. Second, make a budget. List all of the monthly expenses that you have to pay- mortgage, utilities, food, insurance, etc. Third, list all of your other monthly bills- credit cards, medical bills, etc. Finally, make a plan to chip away at the debt. If you find that there simply is not enough money to reasonably pay off the debt, then what?
Though it may sound odd, a bankruptcy filing may be a good option for many people to regain financial security. A bankruptcy filing can assist with credit cards, medical bills and past due mortgage and car payments. It can even help with past due taxes. However, with any bankruptcy filing, timing is extremely important. (This is especially important for business owners who may be using personal assets to keep their business afloat.) It is key to get good advice about all of your options before attempting to dig out of a financial hole, and before you start taking steps that could be to your long-term detriment.
There are 2 main types of bankruptcy. A Chapter 7 is used to liquidate non-exempt assets (most people have very few non-exempt assets), and use the proceeds to pay your creditors. For most people, your house, your car, and your retirement accounts are all exempt from being used to pay your creditors. Most people who file Chapter 7 get to keep all of their belongings and simple get rid of their debt.
A Chapter 13 is a repayment plan that lasts from 3 to 5 years. You get to set up a repayment plan under the bankruptcy rules that let you catch up past due mortgage and car payments, and pay only a portion of your unsecured debt (such as credit cards and doctor bills). You get to keep your house and car, and repay on terms that you can afford.
It is extremely important to talk to a bankruptcy attorney before you take money from a retirement account, borrow more money or attempt to settle debts (there tax implications with debt settlements). A bankruptcy attorney can talk to you about your options, what you can qualify for and help you decide the best option to resolve your financial problems. You don’t want to use limited funds paying bills that you could discharge in a bankruptcy.
Most bankruptcy attorneys will give you a free initial consultation and at least let you know whether a bankruptcy is an option for you, and what the pros and cons of a filing would be. Regardless of whether you file, it is important to educate yourself on all of your options before taking steps that can’t be undone or could hurt you in the long run.
Dean Law Co, LLC is a small firm focused on bankruptcy representation of individual and small business debtors in chapter 7 and chapter 13 cases. Nannette Dean has 24 years of experience and strives to provide solutions for financial problems while maintaining the integrity, dignity and confidentiality of her clients. Visit her website at www.deanlawlpa.com, or call her at 614-389-4943.
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