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But people still work to avoid bankruptcy. So they look to friends and family for a helping hand. No one want to see friends or family suffer. So family members jump in. Parents cash in savings and retirement accounts; co-sign loans; and friends pay bills. So what happens when the assistance fails and bankruptcy becomes the only option?
Recently, I've had a couple clients come in with large loans with their family and friends. One had a significant other cover living expenses for about $10,000 plus owed a brother and sister, combined over $13,000. Another had parents who took out a $40,000 mortgage on their home to assist with the debtor's bills. That is just two middle class clients with over $60,000 in debt to their middle class friends and family.
So, what happens to that debt? It gets discharged like all other unsecured debt. A person filing bankruptcy cannot choose to paid one creditor and not the others. That is called a preference and is not allowed by law. So along with Visa and MasterCard, the parents and significant other are discharged and the debt is wiped out. Even though the parents' debt is secured by their home, the debt between child and parent is unsecured.
Sometimes "help" isn't really helpful. While there are arguments that these losses were necessary, it may only prolong the inevitable. Before you lose your family's money or you "lend" money to someone to get them out of financial trouble, make sure it will end the problem and just kick the can down the road.
If you want assistance, legal representation, or just want to know more about Mark Medvesky or Medvesky Law Office, LLC, check out our website at www.medveskylaw.com.
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You can overcome bankruptcy ...
When will I be able to buy a new home after bankruptcy?
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