See How Chapter 7 May Be Able to Save For Retirement
A Chapter 7 Bankruptcy can help relieve your debt to help you start saving for retirement while other debt relief options may not help in this area.
by:
Dave Te
,
May 8, 2024
Reviewed By:
,
May 8, 2024
Information in this article does not constitute legal advice, it is for informational purposes only, and may not constitute the most up-to-date information. Readers should contact their attorney for advice on any particular legal matter.
It is important to understand how your current financial decision about debt relief will affect your future financial freedom when you are deciding between your debt relief options. One of those financial decisions is how your repayment of debt can affect your retirement savings. What do I mean by this? For example, let's say you qualify under the means test to file bankruptcy.
With debt settlement and debt management, you will end up paying a certain amount of money until the end of the term. This holds true regardless of whether you should be filing a Chapter 7. With Chapter 7, you are able to eliminate your debt oftentimes within 90 days. You can use this fresh start to start investing in your retirement. For information on planning for retirement, learn more from: “How Much Do I Need to Retire”. To qualify for a Chapter 7, you my be interested to estimate whether you qualify using a Chapter 7 Means Test Calculator.
Steve’s calculator was very easy to use. There are only 6 points of information that it requests and he provides helpful explanations for each of these inputs:
Current Age: Enter your current age.
Monthly Payment: Enter monthly payment of debt plan.
Monthly Payment After Payment Plan: Enter any payment you expect to make on a monthly basis into your retirement plan upon getting out of debt. Leave this as 0 if you just want to see the future cost of lost retirement from a repayment plan.
Length of Payment Plan: Enter the number of years the repayment plan will take.
Interest Rate: Enter the rate of return you anticipate your retirement plan to have.
Estimated Retirement Age: The age you anticipate retiring at. (try Savology's free retirement calculator to better understand your projected outcome)
What is the Result of the Calculator?
The result is astonishing, and shows how Chapter 7 bankruptcy can be a compelling option for those who are unable to afford their debt and need debt relief. For my example below, I have a future retirement loss of $460,845.01 for just a 5-year program, assuming a 10% return, a 5-year program, and a monthly payment of $300. That is a huge loss.
Should you do a Chapter 7 if you qualify and have a large, unaffordable debt burden?
For many, Chapter 7 bankruptcy is the right choice and the relief you need. I like how Steve Rhode provides insight into how bankruptcy helps in his article, “The Incredible Healing Power of Bankruptcy.”
I also asked this very question to a close friend who owns and operates a bankruptcy firm. The answer in most cases is “Yes, a Chapter 7 can be extremely useful.” However, he did mention that it depends on each individual’s situation. For example, he stated if you have a high value asset such as a boat and your debt amount owed is less than the value of the asset and you are already behind, then debt settlement can be a very good option.
We provides resources, tools, and information to help individuals get out of debt. We can help you if you are interested in filing for bankruptcy. Ascend can also help if you want to explore debt settlement or debt management options. You may also want to consider reading 8 other potentially costly mistakes to avoid when considering bankruptcy. Feel free to contact us or call us at (310) 307-5134.
We want you to have all the information available about debt relief options so that you can choose the best option for you.
While bankruptcy is a popular solution out of debt, there are other ways to get rid of debt. If you have been reading up on bankruptcy, and it does not sound like something you would like to proceed with, there are numerous other alternatives for you. For example, you could consider home co-investment, which is different from HELOC and reverse mortgage and doesn't need monthly payments.
Whether you file Chapter 7 or Chapter 13 bankruptcy, the value of your home will have an impact on your bankruptcy case. The bankruptcy trustee assigned to your case will first review the value of your home. The review will help them determine if you have non-exempt equity that you could use to pay your unsecured debts. Let us cover the basics before getting into how a trustee values your home.
