Archive for April, 2013

The True Difference between 7s And 13s

Monday, April 15th, 2013
article BLN from Admin

2757851927_838e959e76_mChapter 7 bankruptcies fix things; Chapter 13s allow the debtor to fix things.

There are two main types of bankruptcies for consumers, and many articles have been written here at the Bankruptcy Law Network about the differences between Chapter 7s and 13s.

The purpose of a Chapter 7 bankruptcy is distinctly different from a Chapter 13 bankruptcy. 7s are usually the right answer for debtors who just need a “fresh start” since all unsecured, non-priority debt is eliminated. A Chapter 7 bankruptcy, however, does very little to affect obligations on secured debts that is be kept, like a home.

Chapter 13 bankruptcies do a lot more than 7s. They, too, can eliminate unsecured, non-priority debt, but they can also reduce some types of secured debt. Or change the repayment terms or the interest rate.

Most importantly, they can be used to catch up some obligations and spread out payments over five years. Thus, for example, if you owe $6,000 in back taxes, filing a Chapter 13 will stop any garnishment or levy and allow you to pay them off at about $100 a month for 5 years.

Thus, Chapter 7 bankruptcies are often the best choice for people who just need a drastic change in their economic situation: they need to simply wake up without bills and phone calls pouring in.

Chpater13s are for those who have the ability to get caught up on the things they need to pay (like taxes) or the things they want to keep (like their house) but need time to do it.

7s are for people who need help. 13s are for those people who need a plan so they can help themselves.

A good bankruptcy attorney can guide you through the Chapter that is right for you.

Carolyn Secor is a Clearwater bankruptcy attorney and Clearwater foreclosure attorney serving Palm Harbor, New Port Richey, Oldsmar, Tarpon Springs, Seminole, St. Petersburg and the Tampa Bay area.

If you would like more information on our practice, please consult our website at:

www.bankruptcyfortampa.com
or call (727) 254-1704.

Your 401K Is Not A Piggy Bank

Monday, April 1st, 2013
article by admin

The Washington Post has pointed out that more and more Americans are borrowing against their 401K accounts to finance living expenses. What a mistake! Let’s count the ways:

1)  How you take the money out of your 401K makes a difference. If you just withdraw the money, you have to pay taxes on it as if your were earning a paycheck. That is because this money was put into that account before taxes. As a result most people ‘borrow’ the money from their accounts.

2) Borrowing’ from the account avoids the tax problem, but creates several more. If you do not pay the money back, that tax problem comes back. If you lose our job in the meantime, you may lose the opportunity to ever pay the money back. Depending on your finances at the time, the new taxes can be an even greater burden that it would have been if you just withdrew it from the account in the first place.

3) ‘Borrowing’ also creates another debt you have to pay. Since you are obligated to pay the money back, you have a fixed time in which to do that. Those payments become another bill when you might not be able to avoid another bill.

4) As soon as the money comes out of your 401K account, it loses its magical quality of exemption. While it is in the account, it is not only exempt from taxes, butt it is also exempt from your creditors. Those retirement funds are protected by federal law. Once the money is in your bank account, it may be protected by your state law, but it depends on the state. In Connecticut, for example, only $1,000.00 of the money in your bank account is protected, but all of the money in your 401K is protected.

5) Money in a 401K account is also exempt if you have to file bankruptcy. Would you rather get rid of your bills by taking money out the 401K and paying your creditors or would you rather keep that money for when you really need it and discharge your creditors through bankruptcy?

6) Once the money comes out of your 401K, not only does it lose its exempt status, but since it is not there, it cannot continue to grow for your retirement years. Do you really think you can retire on Social Security money. Despite popular belief, Social Security was not meant to be a substitute for a retirement account or pension, it was only meant to be a supplement. How many companies do you know that pay pensions these days? a 401K may be one of the only ways to save for that day when you cannot work anymore. Do you really want to be working when you are 80?

This same concept applied to the refinance craze. Consumers were refinancing their homes to pull growing equity out of their homes and agreeing to replay a 30 year mortgage when they were in the 50s. The same principles apply – do you really want to be paying a mortgage when you are 80 years old?

If you are truly in financial dire straits, it is understandable if you do not continue to contribute to a 401K account. You have to eat after all. But before taking that money out fo the 401K, take a minute to think about which would be better, retire with some money by discharging your debts in bankruptcy or paying those bills only to end up living in a cardboard box down by the river?

Carolyn Secor is a Clearwater bankruptcy attorney and Clearwater foreclosure attorney serving Palm Harbor, New Port Richey, Oldsmar, Tarpon Springs, Seminole, St. Petersburg and the Tampa Bay area.

If you would like more information on our practice, please consult our website at:

www.bankruptcyfortampa.com
or call (727) 254-1704.