By: Barbara L. Yong, Golan Christie Taglia LLP
If you find yourself in financial difficulty and are struggling to pay your bills on time, you may want to consider filing a bankruptcy. Money problems remain the largest single cause of divorce in the United States and they can often lead to severe cases of depression as a result of the enormous stress, guilt and anxiety people feel when they are overextended.
The good news is that there is not as much of a negative stigma to the filing of a bankruptcy as there used to be. Most people understand the need for a fresh start after a tragedy like a major illness, a failed business or a failed marriage. And from the moment you file bankruptcy, you will benefit from the automatic stay, which prevents creditors from filing a lawsuit or continuing to make collection calls. Most debtors will also be able to restore their good credit rating within a year to 18 months after receiving their discharge.
The greatest benefit to filing a bankruptcy is the ability to discharge some or all of your debt. Most debts are dischargeable. This includes credit card debt, medical bills and unsecured loans. Some taxes are dischargeable as well, depending on what they are for and how old they are. Generally speaking student loans are not dischargeable except in the case of extreme hardship. Secured loans, like mortgages and car loans, can be “reaffirmed,” so if you can afford to keep making your loan payments, you will not lose your home or your car.
You are also allowed to keep your “exempt” assets. There are some federal exemptions, but most exemptions are provided by state law and vary from state to state. In Illinois, the following assets are exempt and therefore protected from creditors:
- Up to $15,000 per person of the equity in your home;
- The cash value of life Insurance as long as the beneficiary is a spouse or dependent;
- Retirement accounts and pensions, including IRAs, 401(k)’s, 529 (educational) savings plans opened more than a year before the filing, and pensions;
- Engagement rings and wedding bands purchased before you got married;
- Up to $2,400 per person in one motor vehicle, and
- Up to $4,000 in any other property.
But the most important consideration for anyone struggling with money issues is to consult with an attorney who practices bankruptcy on a regular basis. Careful pre-bankruptcy planning can make a huge difference in terms of deciding whether a bankruptcy makes sense in your particular situation, and if so, deciding the optimum time to file and the type of bankruptcy you should file. Often, depending on your circumstances, a bankruptcy is not the wisest choice, and with a little bit of guidance, you can negotiate with your creditors to reduce the amount you have to pay or enter into a payment plan that allows you to make payments over time.
So if you are feeling overwhelmed or anxious by the amount you owe your creditors -- don’t wait. Get advice now on your bankruptcy and non-bankruptcy options for dealing with your debt. Many experienced bankruptcy practitioners are ready to meet with you to help you solve your money issues.