The best gift you can give yourself for Christmas may be a fresh financial start by filing bankruptcy.
2020 has been rough. Jobs lost, small businesses devastated, people isolated, schools closed, and neighbors dying. Even if you headed into the pandemic in reasonable financial shape, little good has come of the year of staying at home.
So, what would it mean to shed your debt and approach the New Year with fewer debts? Let’s see.
Bankruptcy wipes out most debts
Unsecured debts, with few exceptions, are discharged in bankruptcy. Unsecured debts are those where the creditor does not have a lien on anything you own.
Credit cards, personal loans, online borrowing, and medical bills are typical unsecured debts. Get a bankruptcy discharge and they’re gone.
Unsecured debts from small businesses including PPP loans, vendors, and business rent are dischargeable, too.
What survives bankruptcy
Bankruptcy won’t wipe out your secured home loan or car loan, assuming you want to keep your house and car.
Some unsecured debts outlive a bankruptcy discharge. Recent taxes, family support and student loans make up the most common exceptions to discharge. Those debts will live on beyond the bankruptcy.
But don’t overlook the benefit of getting rid of other dischargeable demands on your income so you can pay those debts that survive the bankruptcy.
Ace the means test
Lowered incomes during the pandemic may allow individuals who may not have passed the means test before the virus hit.
The means test looks at your income for the past six months before you file bankruptcy. That may be a bleak stretch of income that makes a Chapter 7 filing possible.
Know too that you aren’t locked out of bankruptcy if your income is above the median income from your state. It just means you have to fill out another form to see what your bankruptcy options are.
Start now to file next year
For most folks, it takes some time to gather up the bills, tax returns, and budget information needed to file bankruptcy. If you get started now, you’ll have everything together to file in a matter of weeks.
If you have a home in California, you may want to file in January, when the new, much increased homestead exemption takes effect.
Fresh start creates new energy
Worry is debilitating. Studies show that stress actually costs you IQ points.
For some individuals, it makes sense to file bankruptcy for mental health reasons. If worry about your debt interferes with sleep, job or relationships, bankruptcy may be indicated just for stress relief.
To get that fresh start
To file bankruptcy, you’ll need a list of your assets; your debts with the creditor’s address; paystubs and any other documents showing your income for the last six months; and a copy of your last filed tax return.
You’ll need to get a credit briefing, available online or by phone.
To help you present all of this information correctly, you really do need the help of a bankruptcy attorney. Bankruptcy is a legal specialty and, although you are allowed to file without an attorney, it’s very risky. Make a mistake or omit needed filings and your case may be dismissed. Leave something important out, or tell less than the whole truth, and you may lose your discharge.
Be good to yourself
Treat yourself to a fresh start in the new year.