Personal Bankruptcy and Small Business Debt

What should individuals do when personal finances and small business expenses together result in insurmountable debt? In many cases, Chapter 7 bankruptcy can be an option for Chicagoans who own small businesses and are dealing with a substantial amount of debt related to their business. A recent article in Forbes Magazine discussed the pros and cons of Chapter 7 bankruptcy for adults who are nearing retirement and have been careful with personal finances throughout their working lives but have significant business debt.
By taking a look at the scenario presented in the article, we can see how filing for Chapter 7 bankruptcy can do more than help individuals who are facing credit card debt or insurmountable medical bills. Chapter 7 bankruptcy can help individuals who have little to no credit card debt but have opened business that are, as the article describes, “hemorrhaging dollars.”
Nearing Retirement and Considering Bankruptcy
The scenario presented in the Forbes Magazine article looks like this: A married couple in their early 60s is trying to figure out how to deal with debt. Their debt is not of the variety that afflicts many Chicagoans. Instead of dealing with personal credit card debt and being behind on mortgage payments on their home, the couple is facing massive debt from the husband’s small business. They had been doing well until the recession. The wife worked for a relatively large financial company and had accumulated around $250,000 in her 401(k) retirement account. Her husband owned his own small business, but with the recession “he kept taking on more debt as his rent increased and he tried to enhance his marketing efforts to attract new [clients.]”
What kind of options does a couple in this situation have? It is an important question for Oak Park residents, as this husband and wife are not anomalies when it comes to this kind of financial difficulty. Options depend, at least in part, on the kind of assets that a couple has. This couple had no liquid savings, but they also had no consumer debt aside from their mortgage payment. They both want to retire around the age of 65, but they want to find a way to get out of the massive business-related debt they have incurred. Some options for a married couple in the position can include:
  • Taking out a home equity line of credit on their home. On the one hand, this kind of loan can allow them to pay off the small business debt (or as much of it as they can). On the other hand, this option results in the couple “collateralizing their home for business expenses.”
  • Refinancing their business debt with a private lender. While interest rates on these kinds of loans can be low, their small business may not make enough money (given that its lack of income got them into debt in the first place) to sufficiently repay the loan.
  • Withdrawing money from their 401(k) account, but they will face serious tax liability and will likely need to work past the age of 65 to earn back what they take out.
  • Filing for bankruptcy. Chapter 7 bankruptcy can be a particularly useful tool for Chicagoans in this very type of situation.
Learn More About Filing for Chapter 7 Bankruptcy
In the situation discussed above, the couple ultimately decided to file for Chapter 7 bankruptcy. Their bankruptcy was approved, and their business debts were discharged. They did end up having to move into a smaller home in order to make up for losses from the business, but the husband and wife ultimately explained how filing for bankruptcy provided them with needed debt relief.
Although the couple initially had concerns about the morality of filing for Chapter 7 bankruptcy and the effects it would have on their credit, they ultimately learned that bankruptcy truly can help them “hit the reset button.” For this couple, Chapter 7 bankruptcy gave them the opportunity to “get back to being the fiscally responsible couple they had been up until the recession.”
If you have questions about how filing for Chapter 7 bankruptcy may be able to help you and your family, you should get in touch with a dedicated Oak Park bankruptcy attorney as soon as possible. Contact the Emerson Law Firm today to learn more about how our experienced consumer advocates can assist with your case.
See Related Blog Posts:
States with the Highest Rates of Consumer Bankruptcy

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