By: Jamie Harris
When most individuals find themselves drowning in debt, one of the first options they may consider is personal bankruptcy relief. However, bankruptcy is not always the best option. Individuals may lose significant property in bankruptcy or not be eligible for bankruptcy relief. I frequently see situations where bankruptcy would present more problems than solutions. First, if you have significant equity in your home beyond the exemption amounts allowed in bankruptcy, the Trustee will likely sell your home. In a Chapter 13 bankruptcy, you would be required to pay creditors in full during the life of your plan which is typically five years. But, for many individuals, they may not meet the Chapter 13 eligibility requirements due to debt limits or the requirement that a plan be feasible including payment in full of priority taxes.
For individuals who may lose significant property in Chapter 7 and have eligibility issues for Chapter 13 relief, there are other options. First, you can try a debt consolidation program with a non-profit company. Be aware of private companies that charge sizeable fees and carefully read any agreement. You can also try to do work outs with creditors outside of bankruptcy, but be aware that debt forgiveness outside of bankruptcy will carry tax consequences. Typically, a 1099 will be issued by the creditor to you for the amount of the debt forgiveness. You may be trading dischargeable unsecured debt for non-dischargeable tax liabilities. You may also want to start your own debt repayment strategy, where you limit your personal spending and tackle one debt at a time by applying excess monthly budget funds to that debt until paid off then move on to the next debt. You can also explore refinancing options if you have equity in your home, to obtain a home equity line of credit to pay off debts. You will want to be careful in choosing this option as default on the home equity line will result in foreclosure of the junior mortgage. To understand whether bankruptcy or an out of court workout is the best option under your circumstances, you should consult with an attorney.
About DelCotto Law Group
DelCotto Law Group is Kentucky’s asset protection law firm known for its commitment to the lifetime success of its clients. With offices located in Lexington, Louisville and Danville, DLG serves Kentuckians with complicated financial matters, especially in the areas of bankruptcy, complex litigation, and estate planning. For more information about filing bankruptcy or DelCotto Law Group, please call (859) 231-5800 or email [email protected]