Tuesday, August 16, 2011

Bankruptcy before and after retirement

Two couples, recent clients, both planning for retirement using bankruptcy as a tool.

#1: Before Retirement: 
Mr. and Mrs. X are about ten years from retirement.  Together they share substantial credit card debt.  They also have two mortgages on their home, although with plummeting real estate values, their home is not worth the dollar amount they owe on their first mortgage, let alone the second mortgage.

Over the past several years with job loss, job recovery at a lesser pay scale, the plan for retirement money being saved was replaced with not having enough money to live in the present.  Sitting down one day they figured out if they both continued paying the minimum on their credit cards, which is what they were doing, they would be in their 90's before the credit card debt was paid off, due to the incredibly high interest rates (if they lived that long).  In so doing, they had no surplus funds to live on, let alone save. 

Their collective income puts them above the median for New Hampshire couples.  That means they qualify for a 60-month Chapter 13 bankruptcy plan, where they can do two very important things: (1.) They can remove the second mortgage from their home without repaying it because there is no value to it, and (2.)  They can pay off some of the credit card debt and discharge the entire balance without having to pay the balance of the credit card debt.  At the end of their Chapter 13 bankruptcy plan, they will emerge from bankruptcy  (1) owing NO second mortgage and (2) owing NO credit card debt.  The retirement years suddenly got a whole lot more golden!

#2: After Retirement:  Mr. and Mrs. Z have raised their kids and are both living on social security income.   They owe a small balance on their home but have run up their credit cards due to escalating gasoline bills and heating bills, and generally everything costs more.  Because they are on a fixed retirement income, their income is below the median for New Hampshire couples.  They qualify for either a Chapter 7 case or Chapter 13 bankruptcy repayment plan.  They opt for Chapter 7.  Since they were current on their mortgage payments, and New Hampshire has a homestead exemption, Mr. and Mr. Z were able to keep their home and discharge all of their credit card debt.  Without the credit card debt and the high interest costs associated with the credit cards, they are now able to pay cash as they go for what they need. 

And, they took out a reverse mortgage (people over aged 62 qualify) which means they no longer have any mortgage payments as well.  I see many smiles in their future!

Lesson learned:  Never give up.  Sit down with a professional and start learning about your options.  In the practice of bankruptcy and financial issues, I [along many others] provide a free consultation.

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