Drowning In Debt:
This is a true story. My clients had done everything conceivable to cut costs in their budget, and yet they were still drowning in debt. Most all of my clients have tried to cut ever cost by the time they see me. They needed Chapter 7 bankruptcy relief but weren’t quite qualified. What to do? A Chapter 13 bankruptcy meant they would spend 5 years making payments. Chapter 13 plans are like going on a diet for 5 years, many well-meaning people fail. This Chapter 13 was going to be extremely tight and continue the upheaval my clients found themselves in.
That answer turned out to be undoing of one of their big budget cuts: life insurance. In reviewing their financial situation (and it was dire), I noticed they had no life insurance. Oh, they saw the value in having it, alright, and had carried sizable policies for years. But as their times got tougher, they assumed it was an expense that they would have to forego. I asked what would happen to their children if – God forbid – something happened that took their income out of the picture.
Sidebar: As a bankruptcy practitioner, I’m always a little paranoid of some trustee or creditor suspecting an expense is contrived or unnecessary. As a result, it’s standard practice to advise against taking on not only new debt but also against taking on new expenses soon before filing bankruptcy.
Enter the unlikely heroes here: the insurance lobby. Yep, they were very effective back in 2005 when Congress was busy rewriting the Bankruptcy Code. They apparently (in addition to presumably spending princely sums lobbying lawmakers) also made the case that the law would be improved if it avoided the unpleasant eventuality of orphans on the government dole. (Okay, maybe I’m being too cynical about how that conversation happened. Somehow, though, I doubt it.) Result? The Bankruptcy Code, as rewritten in 2005 to be less kind and less gentle than any revision before it, offers a generous deduction for term life insurance.
Happy Ending: the clients decided it was more important that their children be provided for. The got back the life insurance their children deserved, took the deduction to which they were entitled, and we got through their bankruptcy successfully.
The moral of the story. If your financial situation is so stressed that you need to take drastic deductions like go into your IRA to make payments or cancel your insurance policy (including health insurance) it is time to talk to a bankruptcy lawyer to review your options. There could be a solution that will make your life less stressful.
So… What is going to be your next step?
Pick up the phone and give us a call. Paul knows that calling about filing bankruptcy is hard. No one really wants to. When you call, you will get an appointment time that is convenient for you to meet with Paul. Paul thoroughly believes his clients deserve to have answers.