September 19th, 2021
Posted By
Matthew Wegner

Chapter 7 Bankruptcy is a great tool to eliminate debt and help you make a successful transition to retirement.

What is Chapter 7 Bankruptcy?

In short, Chapter 7 bankruptcy is a legal proceeding in which an individual or couple seek a discharge of their liabilities owed to their creditors. In other words, for some people, we can eliminate your unsecured credit card debt, signature loans and payday loans. We can also surrender, in full satisfaction of the note, vehicles on which more is due that the vehicle is worth.

The great part about Chapter 7 bankruptcy is that if all your property is exempt you will not have to give up a thing. Now exemptions vary from state to state. Click here to see the Federal Exemptions. Here in Texas we can choose between the State exemptions or the Federal Exemptions. This gives us a lot of flexibility when crafting a bankruptcy petition to suit your needs.

How does Chapter 7 Bankruptcy Help in Retirement Planning

Many factors go into to determining the best time to retire. The biggest question most people ask is how are they going to cover their on-going expenses, especially the credit cards. That is where bankruptcy can come in.

A common example that I see almost every month is a couple, I will call them Tom and Joan, who come to my office looking for options to deal with the credit cards so that they can retire and pursue other interests. At the time they come in they have a home with some equity that they want to keep and 2 vehicles registered to their name. They also have $150,000 in a 401k. Tom and Joan want to reduce expenses so that they can live on a much more modest income in retirement. They also have $45,000 in debt, all on credit cards.

The first thing I would discuss with them would be their future goals and current income. In a case like this I would expect the client’s goal to be to get out of debt and move into retirement. They will want to keep those assets they have acquired like their house, cars and retirement savings.

In a Chapter 7 bankruptcy these folks would be able to accomplish all their goals. Under Texas law the home, one car per licensed driver and the retirement savings would all be protected. Tom and Joan would file Chapter 7 bankruptcy, have a hearing about 45 days after filing and should receive a discharge 60 days or so after the hearing. All total, they are looking at 120 days to be debt free.

Conclusion

It is important to remember that each individual situation is a little different You need to speak with a bankruptcy attorney and make sure you have a plan that you can execute going forward. Bankruptcy is a powerful tool that can help you eliminate your debt but it is a serious legal proceeding.