Bankruptcy is often the most effective way to eliminate major debts. By filing, New York residents could reduce or eliminate their credit card, medical and other outstanding balances. However, it is important to note that not all debts can be eliminated. Student loan debt generally cannot be discharged, regardless of whether a person files for Chapter 7 or Chapter 13 protection.
While bankruptcy can be beneficial, there are also several pitfalls to consider. For instance, a Chapter 7 filing will stay on a credit report for 10 years while a Chapter 13 filing will remain for seven years. It may also be harder to get a mortgage or other forms of credit for many years after filing. However, bankruptcy is often better than using retirement savings to pay off debt balances.
This is because IRA or 401(k) accounts are generally protected from creditors during bankruptcy. Therefore, debtors can have their debts discharged without having to sacrifice their retirement savings. Withdrawing retirement funds prior to age 59 1/2 could also result in a 10 percent penalty plus income taxes on the withdrawal amount. Those who are thinking about filing for bankruptcy should visit with an attorney about whether it is truly their most effective option for eliminating debt.
Anyone who is looking to reduce or eliminate debt might want to consider filing for bankruptcy. Doing so could ultimately have a positive effect on one’s finances. In a Chapter 13 case, a debtor can usually keep property such as a car or home. Furthermore, creditors are generally barred from contacting debtors or taking debt collection actions during any type of ongoing bankruptcy case.