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Month: January 2018
Borrowing from a 401(k) account to pay off debt

On Behalf of O’Brien Law Firm, LLC

Posted on: January 31, 2018

Households around the country owe an average of $15,654 to credit card companies. Paying down this debt while saving for retirement can be a challenge for Mississippi individuals and families who are struggling to make ends meet, and borrowing from 401(k) retirement accounts to reduce revolving balances may seem like a good idea. Credit card interest rates are generally far higher than those imposed by retirement plans, but there are a number of important factors to consider before taking out a 401(k) loan.

Borrowing from money earmarked for retirement may not be a wise decision if it does not address the fundamental problem. When credit card balances are high due to excessive spending, paying the debt off with 401(k) funds will merely provide a temporary respite if spending habits do not change. However, this kind of borrowing may be prudent when revolving debt balances were caused by events, such as medical emergencies, that are unlikely to be repeated.

A 401(k) loan may not be a good idea for individuals who may change jobs in the near future. Employers usually expect workers who leave to repay these loans within 90 days, and failing to do this could lead to a tax bill and penalty fees. Those mulling this option should also consider the impact that borrowing from a 401(k) account will have on their retirement plans. This is especially important for individuals with 401(k) plans that do not allow new contributions to be made until outstanding loans are repaid in full.

Attorneys with debt relief experience may suggest filing for Chapter 13 bankruptcy to those with unmanageable financial situations who wish to safeguard their retirement savings. Funds in 401(k) plans have protection under bankruptcy law, and individuals who take this option may be able to enjoy the benefits of a fresh financial start without jeopardizing their future.

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Bankruptcy and your credit score

On Behalf of O’Brien Law Firm, LLC

Posted on: January 26, 2018

Bankruptcy is touted as a fresh financial start, but those who have done some research likely know it will have a negative impact on one’s credit score. Although this is true, there are many reasons bankruptcy may still be the best option. Three common examples to take into consideration before ruling out bankruptcy include:

  • Unmanageable debt. Failing to pay off debt will continue to chip away at one’s credit score. Depending on the type of debt, a successful bankruptcy petition can resolve this problem. Bankruptcy can lead to the discharge of debt, meaning the applicant is no longer liable for the debt. This can essentially wipe the debt off your record.
  • Alternative methods are not an option. In some cases, consumer credit counseling services can offer an alternative to bankruptcy. Others may consider paying off debts with installments. If alternatives like those noted above are not an option, bankruptcy may be the best bet.
  • Credit score is fluid. The credit score for each individual is always changing. It is not a static number. After the bankruptcy is complete, active steps are available that can help rebuild one’s credit score. Paying bills on time and using a credit card properly are two ways to take control of your financial future and start building that score.

Attempting to regain control of your finances is a frustrating process. A skilled lawyer with experience in alternatives to bankruptcy and the various forms of bankruptcy that are available can help guide you through this process and alleviate some of that frustration.

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Three lessons for individuals from the Toys “R” Us bankruptcy

On Behalf of O’Brien Law Firm, LLC

Posted on: January 25, 2018

Toys “R” Us declared bankruptcy in September with a plan. The store was not going to give up. Instead, the story put together this plan to structure itself to reenter the marketplace successfully. Toys “R” Us is not giving up – it just went back to the drawing board to adjust its business model.

It may seem ironic that a business that thrives on keeping consumers in touch with their youth would provide valuable lessons in adulthood. Yet the store’s perseverance is applicable for anyone that is struggling financially. Lessons for those who are also struggling include:

  • Mistakes happen. Financial mistakes happen. In the event these mistakes lead to difficulties making ends meet take comfort in the fact that you are not alone. The decision to consider bankruptcy is not a reflection on one’s personal situation, it is more akin to a business decision.
  • There is more than one type of bankruptcy. There are different types of bankruptcy. Toys “R” Us is using Chapter 13, a version also available for individuals. This type of bankruptcy basically allows you to set up a more realistic plan to repay debts.
  • Bankruptcy can offer a fresh start. Arguable, problems began when this toy selling giant in the retail world failed to transition into a market that now thrives online. The time it is taking to restructure its business plan allows for innovation and brain storming. The team behind the store can emerge from the bankruptcy stronger than ever. This is true for personal bankruptcy as well. Taking the time to develop a repayment plan and proactively get finances under control can set up for a fresh financial future.

Each form of bankruptcy has application requirements. In order to qualify, certain criteria must be met. An attorney experienced in these matters can review your situation and provide guidance on the best form of bankruptcy relief for you.

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Benefits and drawbacks of mortgage modifications

On Behalf of O’Brien Law Firm, LLC

Posted on: January 24, 2018

If you file for Chapter 13 bankruptcy, you may start receiving unsolicited mortgage modification offers from your lending company, which present you with a potential offer aimed at making your home more affordable. Modifying your mortgage differs from refinancing in that refinancing completely eliminates your original loan, replacing it with a new one, whereas a modification refers to a change in your existing loan.

Just how might the terms of your loan change should you decide to move forward with a mortgage modification?

Potential changes to loan terms

The main point of a mortgage modification is to lower your payments until they become more manageable. This might include lowering your interest rate, switching from an adjustable rate to a fixed rate, or extending the length of the loan to give you more time to pay. It may, too, give you more options in terms of deferring or forgiving some of your principal balance or adding an additional amount on the back end of your loan.

Advantages and disadvantages

When it comes to mortgage loan modifications, there are benefits and drawbacks. In terms of benefits, you may find that you can modify your loan faster than you can refinance it. Furthermore, your interest late on a mortgage modification will typically remain low for about five years, and even after that, it typically will not climb higher than your contract rate, or the standard rate reserved for well-qualified buyers.

In terms of drawbacks, mortgage modifications leave you with a new, 40-year amortization schedule. If you are already in middle age, this could mean taking on a new debt for the remainder of your life.

Ultimately, whether a mortgage modification is a good idea for you depends on the unique circumstances of your situation and finances. If you are experiencing considerable financial stress that stems in large part from your mortgage responsibility, a mortgage modification may help you manage your finances and avoid Chapter 13 bankruptcy.

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How does discharge work in a Chapter 7 bankruptcy case?

On Behalf of O’Brien Law Firm, LLC

Posted on: January 19, 2018

If you are considering filing for personal bankruptcy you have likely looked into a Chapter 7 bankruptcy. A Chapter 7 petition for relief through bankruptcy takes many steps, including discharge.

What is discharge? Discharge is defined by the United States Courts as the process that “releases individual debtors from personal liability for most debts and prevents the creditors owed those debts from taking any collection actions against the debtor.”

Essentially, this means the debt is forgiven.

Can any type of debt get discharged? Note the above definition states “most debts.” There are certain types of debt that do not qualify for discharge through bankruptcy. It is important to carefully consider the role dischargeability will play in your bankruptcy petition before moving forward.

Examples of debt that generally do not qualify for relief include child support, alimony, tax debts and student loans. The failure to allow for discharge of student loan debt is a contentious issue. In some cases, an individual can overcome this general rule. Discharge of student loans may be available if the applicant can establish the loan results in an “undue hardship.”

In order to establish undue hardship, the applicant must meet a three part test. The test includes a review of the applicant’s income, duration of the repayment period and whether or not the individual has made a good-faith effort to repay the loans.

There are also some cases where a creditor may file a complaint objecting to the discharge. These cases are not often successful. Examples of success are present when the creditor can establish that the person seeking relief through bankruptcy has kept fraudulent records or committed perjury during the bankruptcy process.

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