Helping Grown Family Members

Taking on an adult family member’s debts as your own can be a huge risk. Perhaps the person who needs help is an aging parent or an adult child who can’t hold down a job and for whom you continue to feel responsibility (the latter situation is particularly common, in our experience).

It is understandable when parents want to help their adult children, but it is important to think of your own needs. You’re going to need extra money and a place to live after retirement.

If you live in Alabama and need a financial fresh start, an experienced bankruptcy attorney at Grainger, Hawley & Shinbaum may be able to help.

Using Chapter 7 or Chapter 13 to Resolve Financial Hardships

Filing for Chapter 7 or Chapter 13 bankruptcy may be the only feasible solution to financial hardship caused by grown family members. You should be aware, though, that if you file for bankruptcy, it’s only your debts that will be discharged at the end of the process; your family member’s obligations will remain intact.

Chapter 13 Bankruptcy

Often called a “wage-earner’s plan” or “debtor’s court,” Chapter 13 bankruptcy involves agreeing to a court-approved repayment plan to settle your debts over the course of three to five years. Unlike Chapter 7, it does not require liquidation of assets.

You will have to make monthly payments during the period of the bankruptcy, and the amount of the payment will be based on your disposable income, level of debt, and value of your assets. Because of the financial demands of Chapter 13 bankruptcy, there’s a good chance you won’t be able to provide assistance to family members outside of your household during the repayment period.

However, if you have a stable income and you can afford to make regular payments, Chapter 13 might be the right call for you. It might also be a good idea if you need assistance but can’t afford to part with your non-exempt assets (as would be required under Chapter 7).

Chapter 7 Bankruptcy

Chapter 7 bankruptcy involves the sale of your non-exempt assets to repay your creditors. Once this process is complete, all eligible debts will be discharged. If your efforts to support your struggling family member have left you with unmanageable debts and you don’t have a sufficiently large income for Chapter 13 bankruptcy to work in your case, Chapter 7 might be the right call.

Most unsecured debts, such as credit card debt, medical bills, and personal loans, are dischargeable under Chapter 7. However, student loans, alimony, child support, and certain other types of debts typically cannot be discharged.

The rules allow you to keep many categories of assets after filing for Chapter 7, including useful household items and retirement accounts. If you’re considering filing for bankruptcy but you’re worried about losing certain specific items, an experienced bankruptcy attorney can evaluate your assets and determine what property, if any, is at risk of being sold.  Most debtors who file Chapter 7 Bankruptcy, are fully aware of what property is at risk; with proper use of exemptions, most property can be protected from liquidation.

Is Bankruptcy the Only Option?

Though bankruptcy can be a powerful tool in the fight against financial ruin, it does come with drawbacks. First, there’s the loss of income or assets, which can significantly impact your quality of life. It may also impede your credit score for up to a decade, and your personal circumstances may make you ineligible for filing.

There are other options that may help you deal with the financial strain related to your dependent relative. These include:

• Asset refinancing: You may be able to take out a new loan on a large asset, such as a home or vehicle. This could help you cover your family member’s costs without filing for bankruptcy.
• Negotiation with creditors: Negotiation is only possible with certain creditors (small lenders are typically more amenable to it than larger institutions). However, if you can do it, it may result in reduced interest rates, extended payment terms, or settlement for less than the full balance.
• Debt consolidation: Debt consolidation combines multiple debts into a single loan with a lower interest rate or more favorable terms, simplifying payments and potentially reducing overall costs. For this to be a viable option, though, you’ll need to meet the qualification requirements for a debt consolidation loan from a bank or credit union.
• Refusing to pay creditors: If you’re “judgment-proof,” meaning that you’re unlikely to be severely affected by garnishment, a judgment lien, or a sheriff’s sale of your assets, you may be able to simply ignore your creditors’ attempts to collect your debts. This is a risky strategy, however; if you’re considering it, you should discuss the particulars of your situation with a lawyer first.

It should be noted that none of these options offer the immediate relief from collection attempts that bankruptcy does.

Factors to Consider

An adult family member who needs continual financial help can continue to present problems after you file. While creditor harassment may stop with a bankruptcy filing, requests for help from a loved one may continue; depending on your relationship, these can be very hard to ignore.

Depending on circumstances, it may be a better idea to advise a family member to file for bankruptcy, rather than take on his or her debts and eventually have to file for bankruptcy yourself. Although there may be consequences for their credit report, these are not permanent.

You should consider advising your struggling family member to see an attorney, as this may help them to develop a debt repayment plan for Chapter 13 bankruptcy or learn how to live within a tighter budget.

Contact an Alabama Bankruptcy Attorney to Discuss Your Options

Grainger, Hawley & Shinbaum have years of experience evaluating the finances of Alabama clients and helping them through the process of filing for bankruptcy. We represent clients in the Middle District of Alabama; we have offices in both Montgomery and Prattville to better serve you.

Call us at (334) 260-0500 or (334)361-7750, or use our online form to schedule an initial consultation at no cost to you.