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Chapter 7 bankruptcy or tap into accounts to pay off debt?

Debt consolidation loans, credit cards offering an interest free balance transfer option, home equity loans and even retirement accounts all offer the Kentucky resident options to pay off debt. In some cases, one of these options may be a good idea. However, depending upon the individual and his or her circumstances, Chapter 7 bankruptcy may be a more appropriate choice.

Debt consolidation loans and balance transfer cards allow the individual to shift debt and possibly reduce their consumer debt to just one vehicle. One thing to keep in mind with these two options is that the individual must qualify for the new loan. Home equity loans allow the individual to take equity from their home and pay off debt. However, the individual and property must also qualify for this new loan. Additionally, this type of loan will often transfer unsecured debt to debt secured by the home.

Another option that is often appealing to individuals is to tap into their retirement account. This can be done by either withdrawing funds from the account or taking out a loan against the account. Such action may appear to be a good idea at the time; however, both will reduce the value of the account upon which interest is earned and may result in tax penalties.

In deciding if attempting to pay off the debt or file for Chapter 7 bankruptcy is the appropriate choice, the individual will want to carefully review his or her situation and the ramifications of potential options. For example, taking money from the retirement account will reduce its value; however, retirement accounts are exempt from liquidation in bankruptcy proceedings. Experienced legal counsel will be able to help the Kentucky resident decide which option is most appropriate.

Source: ajc.com, "A High-Wire Act: Paying Off Debt With Retirement Money", Jeanne Lee, July 7, 2017

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