Kiplinger’s Personal Finance: When is personal bankruptcy the right move? | Business News
While Chapter 7 offers the opportunity for a fresh start, it also weighs more heavily on your assets. Additionally, not everyone is eligible for Chapter 7.
A lawyer will determine if you qualify based on your state’s household income requirements, which vary widely. For example, in California, a family of four with an annual gross income of less than $ 101,315 qualifies for Chapter 7. In Arizona, a family of four must earn less than $ 86,950.
Your lawyer will also analyze other aspects of your financial life to determine if Chapter 7 is the best course for you.
Chapter 7 may not be the best if you are a homeowner who has great equity in their home because you could lose your home and the equity you have earned, Bankrupt Lawyer Gregory Wade said. in Alexandria.
Each state has a homestead exemption that protects a certain amount of home equity in Chapter 7 and Chapter 13 proceedings, but you can still lose equity in a forced sale.
The home equity exemption is just one of many exclusions designed to help consumers declaring bankruptcy start a new financial life.
The money in your 401 (k) plan and IRAs is protected from creditors, as well as veterans’ benefits and pensions. For this reason, it is not a good strategy to liquidate your retirement accounts to pay off your debts, said John Colwell, president of the National Association of Consumer Bankruptcy Attorneys.