Should you file for bankruptcy to pay off your debts?



    A sign with an arrow pointing to the left to the United States bankruptcy court in lower Manhattan.

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Has the pandemic piled on you so much debt that you wonder if you should file for bankruptcy? If so, it is not surprising. In the footsteps business closure due to coronavirus and job lossbankruptcy filings have skyrocketed this year, with nearly 80,000 Americans hoping to write off some or all of their debts.

The jump could herald an ongoing wave of filings, including among people over 65 who have been in the years leading up to the pandemic. fastest growing age group for bankruptcy filing… The combination of high medical bills, limited retirement income and a lack of guaranteed pensions makes this trend likely to continue, says Robert Lawless, professor of law at the University of Illinois. “The COVID epidemic has not improved the situation,” he says.

But a fresh start brought on by bankruptcy is not a walk in the park that you would believe some of the attorneys’ announcements. And this has implications for older Americans that may surprise you. This is what you need to know.

Two ways

If an individual applies for bankruptcy protection, it usually happens under one of two sections or chapters of the US bankruptcy law. Most individual applications go through Chapter 7, which cancels out debt, often at the expense of your home and your non-retirement assets. You usually pay between $ 1,000 and $ 2,000, including attorney fees, and can only apply if your income falls below certain limits, such as the average household income of the same size in your state. Chapter 13 can cost three times as much, and it only pays off your remaining debts after you’ve completed your three to five year payment plan without any missed payments or mistakes. You are expected to use your income, including withdrawals from your retirement account, to pay off debts, but Chapter 13 usually protects your home. To make an application decision, you can find a specialist in your state through National Association of Consumer Bankruptcy Lawyers and ask for a free consultation.

How filing can help

It could save your retirement. Filing documents can destroy credit card balances, Medical bills and other debts, which gives you a better chance of saving for retirement and more protection for what you have already accumulated. While pensions, 401 (k) s, and recent Social Security benefits are protected from lenders even if you don’t apply, bankruptcy adds up to $ 1.36 million in protection to an IRA, which is not always prohibited for lenders at all. states.

Filing for bankruptcy is often the first step in improving your credit rating. Despite the fact that the bankruptcy filing will remain on your credit report for seven or 10 years (where it can be shown to you if you are applying for a job or trying to rent an apartment), “This is not the end of the world,” says Jenny. Doling, a Palm Desert, California bankruptcy attorney. “You can get a loan pretty quickly.” (This isn’t always good news, however; see below.)

You may be able to leave more money in retirement accounts for your heirs if your debt is paid off through bankruptcy filing. Otherwise, creditors – not your heirs – will receive the first money from any money on your estate.

And bankruptcy can provide peace of mind. Applicants tend to feel embarrassed, no matter how often they are persuaded that this is a business decision and that there is no shame in going through hard times. But relief comes after that, say bankruptcy lawyers who have seen this pattern repeatedly – relief from both debt collectors and the anxiety that often accompanies exorbitant debt. According to Lawless, “getting the phone to stop ringing is more important than most people think.”


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