Do you have a debt plan?
If you are struggling to pay your debts, it is important to have a plan to get out. All too often, we see our clients deplete their retirement accounts, sell their cars or other items, and work themselves sick in an attempt to pay down their debts without a real plan.
Putting out Debt Fires
If you are using credit cards to pay bills or making only the minimum payments to the credit card that calls first, all you are doing is putting out small fires. As soon as one fire is out, another one starts up. Before you know it, you are surrounded by an uncontrollable inferno of debt.
Paying Debts is Commendable
Don’t get me wrong; it is very commendable to make a reasonable effort to pay the debts you can pay. Most people feel they have a moral obligation to make a good faith effort to pay their creditors. If you are in a position to pay your debts in full, or can reasonably make progress on your debt by just cutting back on unnecessary expenses, by all means, you should pay your debts.
But if you are not able to make real progress and are just working to pay the banks, then you are practically an indentured servant. If you are jeopardizing your family’s financial future to pay a bank, you are not doing your family any favors.
Bankruptcy Exemptions Protect Consumers
Bankruptcy laws were set up to protect consumers from becoming slaves to their creditors. The laws were designed to protect certain assets so that when someone files bankruptcy, they are not left on the street.
What Can You Keep When You File Bankruptcy in Indiana?
Indiana has set up exemptions to protect certain assets from your creditors in bankruptcy. That includes:
- Up to $17,600 of equity in your home
- Up to $9,350 of equity in all your other “stuff” (cars, furniture, clothing, etc.)
- 100% of your 401k, IRA, or other retirement accounts
- 100% of your Social Security Benefits
- 100% of the Earned Income Credit portion of your tax refund
These amounts double for joint cases, so if you own your home jointly with your spouse, for example, we can protect up to $35,200 of equity.
What NOT to do in bankruptcy?
Don’t be short-sighted. In most cases, you should not use these exempt assets in an attempt to keep creditors happy. The best way to come out of a difficult situation is to recognize it early and take the appropriate steps to avoid real problems.
You should almost NEVER:
- Take out a Home Equity Line of Credit to make payments on a credit card or medical debt
- Sell your car or household goods to make payments on the credit card or medical debt
- Use your tax refund to make payments on a credit card or medical debt
- Use your Social Security benefits to make payments on the credit card or medical debt
Of course, there are always exceptions to these rules, so it is best to consult with an experienced bankruptcy attorney, so you know your options before you do anything. The one rule that is pretty much universal, though: Never Use Retirement Funds (401k or IRA) to Pay Credit Card or Medical Debts!