Why You Shouldn’t Exhaust Your Retirement Accounts to Save Your House

With the state of today’s economy I am encountering a very common scenario with many of the clients who come to my office to discuss bankruptcy.  By the time many individuals who are contemplating filing for bankruptcy come to see me, they have already exhausted their savings and retirement accounts in an attempt to stay afloat.  While utilizing savings and retirement funds may seem like a logical step in an attempt to avoid filing for bankruptcy, many clients are shocked and saddened when I tell them that the retirement accounts they just exhausted could have been fully protected in bankruptcy.

The Bankruptcy Code provides for exemption amounts for certain types of property so that an individual filing for bankruptcy can protect their assets up to a capped amount which depends on the type of property.  Most retirement accounts are fully exempt.  This means that an individual filing for a chapter 7 bankruptcy can still file for bankruptcy protection in order to discharge their credit card debt, medical debt, auto loans, and/or mortgage while having a substantial amount saved in a retirement account.  Often times, when an individual is faced with the situation of owning a home they cannot afford or a home that is underwater, they tap into their retirement accounts in an attempt to save the home from foreclosure.  But, if the individual truly cannot afford that house, or if the house is so far underwater they may never be able to get out from under it, utilizing retirement funds may be a big mistake!  Filing for bankruptcy before touching retirement accounts would allow the individual to walk away from their unsecured debts, walk away from the house they cannot afford or that is underwater, and obtain a fresh financial start all while preserving their retirement accounts for the future.

Don’t wait until it is too late.  If you are considering utilizing your retirement accounts in order to avoid bankruptcy, contact us today to discuss your options.  The ramifications of filing for bankruptcy are not as severe as most people think, and acting now may allow you to save your retirement money for its intended purpose.

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Filing for Bankruptcy Does Not Destroy Your Credit Like You May Think!

I have talked to potentially hundreds of potential bankruptcy clients by now, and with each new potential client I meet, it becomes more evident that many individuals have several misconceptions about the bankruptcy process and how filing for bankruptcy will affect them in the future.  One of the most common misconceptions about the bankruptcy process is that it will ruin your credit and you will be financially “doomed” for the rest of your life.  For most individuals, this is simply not true.

By the time most people even consider filing for bankruptcy, their credit score has already taken a beating due to the high amount of debt they are carrying (or their credit essentially being maxed out), late payments, missed payments, repossessions, foreclosures, etc.  For many, their credit score has been lowered so much by the foregoing examples that it cannot get any lower, and thus, there essentially isn’t any credit for the bankruptcy process to truly hurt.  What many people do not realize is that for most people, there is a great chance that your credit score will actually go up after you file for bankruptcy and rid yourself of all of the debt burdens that have been dragging you down.  As with everything in life, there are always exceptions.  There are some individuals with excellent credit scores who file for bankruptcy as a “preemptive strike” before things happen to cause their score to weaken.  For some of the individuals who fall within the foregoing category, filing for bankruptcy may lower their score slightly.  But, the vast majority of people filing for bankruptcy fall within the first category, and see an increase in their score after filing.

Many are also bothered by the fact that the bankruptcy filing will stay on their credit report for seven to ten years, and mistakenly think that the mere fact that the bankruptcy filing appears on the credit report is what will prevent them from obtaining a car loan or a mortgage in the future.  This, too, is a myth in part.  Many creditors will be apprehensive or will refuse to lend credit to someone immediately after a bankruptcy filing.  However, as more and more time passes from the time the bankruptcy case was discharged, the filing itself becomes less important and what you have done to rebuild your credit following the bankruptcy becomes a more important factor in determining whether to extend credit.  For example, a creditor will be much more likely to extend credit to someone who has filed for bankruptcy, but who has been on-time with all the payments on their post-bankruptcy debts, versus an individual who has obtained and defaulted on post-bankruptcy debts.  As such, the mere presence of the bankruptcy on a credit report is not necessarily the deciding factor in whether a creditor will extend credit to someone who has filed bankruptcy.

In sum, if you are feeling overwhelmed by accumulating debt and are feeling like you are in a hole that you cannot climb out of, filing for bankruptcy can provide you the financial relief that you need and give you the opportunity for a fresh financial start.  Many people I meet with are relieved to know that filing for bankruptcy can be a relatively painless process that will help free them from the financial burdens they are currently experiencing and that their credit score will start going up once the process is completed.  The opportunity to pay an attorney fee and filing fee (which is usually nominal in comparison to the amount of outstanding debts an individual may have) in order to discharge potentially thousands or hundreds of thousands of dollars of debt and to know that they will not be financially “doomed” for their life is an investment worth making for many people.

Contact us if you would like to discuss your circumstances to see if filing for bankruptcy can help you obtain a fresh start!

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Will Student Loan Debt Cause the Next Economic Crisis if Bankruptcy Laws Are Not Changed?

Recently, several sources have been reporting on the growing concern over the amount of student loan debt in which many young individuals and parents of college and graduate students alike now find themselves.  One reason why student loan debt is getting so much attention is because the total amount of student loan debt in the United States now exceeds the amount of outstanding credit card debt and, in 2011, the amount of outstanding student loan debt exceeded $1 trillion for the first time.  Some feel as though indications are there that we are on the verge of a potential student loan related crisis similar to the mortgage related crisis our country has been in for the last few years.

The National Association of Consumer Bankruptcy Attorneys (NACBA) has prepared a report regarding this issue, and is actively working to convince lawmakers to change the current Bankruptcy Code to allow student loan debts to be discharged in a bankruptcy.  As the Code is written today, student loans are non-dischargeable and, as such, individuals whose primary source of debt is educational in nature are unable to obtain the fresh start that bankruptcy provides.

NACBA’s full report entitled “The Student Loan ‘Debt Bomb:’ America’s Next Mortgage-Style Economic Crisis,”  is available on its website at http://tinyurl.com/7o6eckp

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I Lost My Job and Can’t Afford My Child Support Payment. What Should I Do?

As the economy has worsened over the last few years, more and more people are losing their jobs.  Facing the daily struggle of trying to make ends meet while you are unemployed can be stressful and anxiety-provoking for sure.  Many individuals who have faced prolonged unemployment turn to bankruptcy after they are unable to hang on any longer.  However, what about individuals who are paying court-ordered child support who subsequently lose their jobs?  Can they just stop paying their child support?  Can their child support obligation be discharged in a bankruptcy?

Child support obligations are not dischargeable in bankruptcy.  However, if you lose your job, you have other options to reduce the amount of child support you pay each month.  If you have lost your job involuntarily, you may seek to modify your current child support obligation by filing an action to do so in Superior Court.  Even if you discuss your unemployment situation with the other parent, and the other parent agrees to the modification, the Court must approve of the changes and issue an Order for the new amount.  The new amount will not be considered an official modification unless the Court approves it.  Therefore, if you fail to obtain Court approval for the change, the other parent could come after you later for failure to pay the original court ordered amount.

Georgia law requires a parent to show a substantial change in either parent’s income and financial status or the needs of the children in order to modify a child support order.  However, the law specifically provides that child support may be modified due to the involuntary loss of employment.   Generally speaking, a child support order cannot be modified until two years have passed from the date of the original child support order or from the last modification order.  However, involuntary unemployment is one of three exceptions to that rule, and a modification action based on involuntary loss of employment may be filed sooner.

If you are currently court ordered to pay child support and have experienced an involuntary job loss, you should contact an attorney sooner rather than later.  Under Georgia law, you remain responsible to pay your court-ordered child support amount until the other parent has been served with your petition to modify child support.  Remember, even if the other parent has verbally agreed to a downward modification of the child support amount, you must have court approval of the change.

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Will My Chapter 7 Bankruptcy Affect My Tax Refund?

It is the time of year that some people love and some people dread… tax time.  Some individuals can’t wait to file their taxes because they anticipate receiving a refund which they may desperately need.  For others, tax time is an unpleasant period of uncertainty and anxiety as they determine how much they owe the government.  But, what happens if you are expecting a refund and also plan to file for bankruptcy in the near future?

In a Chapter 7 bankruptcy, the bankruptcy Trustee collects the debtor’s non-exempt assets and liquidates them (reduces them to cash) in order to pay the debtor’s creditors. By statute, debtors who file a Chapter 7 bankruptcy are entitled to protect or “exempt” some of their property from being included in the property that the Trustee liquidates.  Tax refunds are considered an asset, even if the debtor has not received the refund yet, or even if the debtor has not filed their tax return prior to filing for bankruptcy.  It is very important to inform your bankruptcy attorney whether you expect to receive a refund.  It may be that the amount you anticipate receiving can be easily protected by using an available exemption.  However, if it appears as though the amount of the refund will not be able to be protected, there may be other things to do in order to avoid having the refund being included in the pool of assets taken by the Trustee in order to pay creditors.

In some instances, it is better to file your taxes and receive your tax refund prior to filing for bankruptcy.  That way, you will potentially have consumed the refund prior to your bankruptcy filing.  It is important to note, however, that tax refunds should not be used to purchase other assets.  Instead, it is perfectly acceptable to use the tax refund for necessary and ordinary expenses such as paying your mortgage, car payment, groceries, gas, etc.  Additionally, it is acceptable to use your tax refund to pay for the attorney’s fees for your bankruptcy filing.

The possibility of receiving a tax refund should not deter you from filing for bankruptcy.  Ideally, you will have enough exemptions to cover the anticipated refund.  However, if you do not have available exemptions and need to file the bankruptcy before you are able to receive and consume the refund on ordinary expenses, potentially having to turn over a tax refund in order to settle or eliminate your responsibility to pay most or all of your other debts is still a good deal in the grand scheme of things.



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