Many Americans are dealing with growing debts and find themselves in a situation where they do not see a path to financial security. It can be stressful and exhausting to form a plan to get out of debt when the bills seem to come in faster than your income. Remember, you do have legal options. There are many ways to consolidate your debts or restructure them through bankruptcy. A good place to start is with fully understanding your rights and knowinghow to protect as many assets as possible when you are resolving issues with debt.
Protect Your Retirement Plans
Your retirement accounts, 401(k), and IRA are protected from bankruptcy proceedings, so you want to avoid withdrawing money from these accounts whenever possible. If you have mounting debt, it can be tempting to use the money you have saved for retirement. This is almost universally derided as a bad idea by most professionals and attorneys that practice bankruptcy and debt consolidation. You will generally have to pay a penalty for early withdraw, and the money will be taxable income when you pull it out of a retirement account. This is an especially bad idea if you are turning around and sending all that money to creditors. You should exhaust all other options before taking money out of your retirement accounts.
There are many options for debt consolidation loans if you have increasing debts, yet still retain a solid credit rating. Lenders would provide you a loan to pay off your existing debts and move forward with one single payment that you can afford at a lower interest rate. The devil is in the details with all debt consolidation programs. Many times, the new lender will take a fee off the top before paying any money to your existing creditors. They may simply be agreeing to attempt to settle your debts for less than is owed. This can leave you open to lawsuits from your existing creditors if the debt consolidation proposal is not accepted by all creditors.
If you have poor credit and debts that exceed your income, then bankruptcy may be the best choice. There are two main options for individuals and companies that want to file for bankruptcy in New York: Chapter 7 and Chapter 13.
Chapter 7 bankruptcy in New York allows the individual to wipe out most, and in some cases, all of their debt. This process does require means testing to make sure that they qualify for Chapter 7. The individual must show income below required levels for the past six months. The means test is a complicated process that involves showing all income sources, except Social Security payments. You must even include your spouse’s income. This is factored against the average monthly incomes for different household sizes in New York.
The median yearly income amounts as of November 1, 2016 were:
1 Family Member – $50,768
2 Family Members – $65,233
3 Family Members – $74,925
4 Family Members – $90,852
*Add $8,400 for each additional family member.
Chapter 13 is a three to five year structured repayment plan. It does not wipe out the debt. Chapter 13 will allow you to keep your home by making up missed payment with future income. It can also be used to stop interest from accruing on back taxes. Chapter 13 is the only option that will allow you to keep non-exempt property with a repayment plan.
Protect Your Home from Foreclosure
Residents of New York are protected by the Homestead Exemption. This allows a person declaring bankruptcy to protect the equity in their home. An individual is allowed to exempt up $165,550, depending on where they live; couples are allowed to double this amount.
Find an Experienced Bankruptcy Attorney in New York
If you are experiencing financial difficulties and want to fully explore your legal rights, the best course of action is to find an experienced bankruptcy attorney in New York. You want to work with an expert, whether you are looking to explore debt resolution options or already know that bankruptcy is the best path. The means test for Chapter 7 is especially complicated, and you will want to work with an attorney that has gone through the process with many clients.