In uncertain economic times debt can sometimes become insurmountable. Events such as loss of a job or medical bills can wipe out a family's savings. In the worst cases of financial disasters, bankruptcy is a legal method of eliminating debt and providing a means for a fresh financial start. While we do not recommend bankruptcy to any member, the fact is that some bankruptcies are inevitable.
What To Consider
In many cases, bankruptcy means elimination of debt that you owe to your creditors. There are two types of bankruptcy for individuals. The most common is Chapter 7, which wipes out credit card balances, medical bills and other debts, with the exception of recent taxes and student loans. Debtors must give up most of their assets, which are sold and the proceeds going to repay creditors.
Instead of giving up your assets, Chapter 13 bankruptcy requires you to submit a plan to the court explaining how you intend to pay off your debts within five years. If the plan is approved, you pay a bankruptcy trustee a set amount each month for distribution to creditors. This method only works if you have enough monthly income to make the payment.
Unfortunately, some people think of bankruptcy as the easy way out of financial difficulties. Too many are finding out the hard way that there's nothing easy about life after bankruptcy. Your credit history will show for ten years, sometimes more, that you declared bankruptcy. It may be harder for you to get a job or to rent or buy a home. And if someone does extend you credit later, it is likely to come at an interest rate far more than you would have paid before.
How Harborstone can help
Tough times can cause one to re-evaluate how to properly plan to avoid being in a situation of bankruptcy. There are things that you can do to protect yourself like building an emergency fund to cover at least six months of unemployment should you or you spouse experience loss of a job. Major medical expenses can catch you off guard. To avoid draining your life savings for medical bills, you'll want to consider adequate medical and disability insurance coverage. With many new products like Long-Term Care available, you may be able to keep most of that savings. Proper planning can give you piece of mind for your financial future. The following financial tools can help you keep on track:
- What's it worth to reduce my spending?
- How much am I spending?
- What will it take to pay off my balance?
One good way to avoid bankruptcy is through proper financial planning. While we do not offer legal or tax advice to our members, we do have solutions that may help keep you out of bankruptcy. Our financial advisors can help you develop an investment and insurance plan to best fit your needs.