Thursday, October 20, 2011
Filing Bankruptcy After Job Loss
Filing Bankruptcy After Job Loss
Many American families rely on
two incomes to pay the monthly bills and set a little aside as savings. When
one income is unexpectedly reduced or eliminated, the family is thrust
immediately into a crisis mode. Often there is not enough money to pay all of
the family bills, so touch choices must be made.
The first thing to do is to be
realistic and not overreact. It is important to use savings wisely during this
time and to safeguard retirement. Spending these funds to maintain your
lifestyle is not good financial management, and will have long-term
consequences. In most cases a substantial amount of cash and all of your
retirement funds can be protected if you need to file bankruptcy. Likewise,
most assets are protected during bankruptcy, so it is not necessary to sell
assets to pay creditors.
Second, prioritize your spending.
This may mean eliminating or reducing certain “luxuries” like premium tv
channels or inflated cell phone plans. Creditors must be prioritized also. For
instance, it may be more important to pay the car payment instead of a medical
bill. If you file a Chapter 13 bankruptcy, your secured creditors receive a
higher priority than unsecured creditors. That means your home mortgage and car
payment are paid before credit cards and medical bills. You keep the house and
car while unsecured creditors receive little or nothing.
Third, understand the
consequences of late payment and default. There may not be enough money to pay
all of your creditors, so what happens if you don’t pay a bill? In some cases
filing bankruptcy will actually help your credit over the long haul. Bankruptcy
stops all creditor action, including negative reporting to the credit bureau.
By filing bankruptcy you can avoid additional negative reports like late
payments, default, charge-offs, repossession or foreclosure.
Whether to file bankruptcy after
a job loss depends on a number of circumstances. The best advice is to consult
an experienced bankruptcy attorney and discuss your financial options.
Bankruptcy can help you reorganize your finances when there is not enough money
to pay all creditors. Your attorney can help you prioritize your spending and
protect your assets.
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