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Introduction:

It is important to understand how your current financial decision about debt relief will affect your future financial freedom when you are deciding between your debt relief options. One of those financial decisions is how your repayment of debt can affect your retirement savings. What do I mean by this? For example, you qualify under the means test for a Chapter 7 bankruptcy. Although, you want to evaluate debt settlement and debt management programs.

With debt settlement and debt management, you will end up paying a certain amount of money until the end of term. This holds true regardless of whether you should be filing a Chapter 7. With a Chapter 7, you are able to eliminate your debt oftentimes within 90 days. You can use this fresh start to start investing in your retirement. For information on planning for retirement, learn more from: “How Much Do I Need to Retire”. To qualify for a Chapter 7, you my be interested to estimate whether you qualify using a Chapter 7 Means Test Calculator.

How can you calculate what you can save? Steve Rhode’s “What Repaying Your Debt Will Cost You in Retirement – Calculator” from GetOutOfDebt.org was extremely compelling and helpful. I had not thought of this idea before.

How The Calculator Works:

Steve’s calculator was very easy to use.  There are only 6 points of information that it requests and he provides helpful explanations for each of these inputs:

  1. Current Age: Enter your current age.
  2. Monthly Payment: Enter monthly payment of debt plan.
  3. Monthly Payment After Payment Plan: Enter any payment you expect to make on a monthly basis into your retirement plan upon getting out of debt. Leave this as 0 if you just want to see the future cost of lost retirement from a repayment plan.
  4. Length of Payment Plan: Enter the number of years the repayment plan will take.
  5. Interest Rate: Enter the rate of return you anticipate your retirement plan to have.
  6. Estimated Retirement Age: The age you anticipate retiring at.

What is the Result of the Calculator?

The result is astonishing, and shows how Chapter 7 bankruptcy can be a compelling option for those who are unable to afford their debt and need debt relief. For my example below, I have a future retirement loss of $460,845.01 for just a 5 year program, assuming a 10% return, a 5 year program, and a monthly payment of $300. That is a huge loss.

Should you do a Chapter 7 if you qualify and have a large, unaffordable debt burden?

For many, Chapter 7 bankruptcy is the right choice and the relief you need. I like how Steve Rhode provides insight into how bankruptcy helps in his article, “The Incredible Healing Power of Bankruptcy.” You may also consider reading about bankruptcy misconceptions.

I also asked this very question to a close friend who owns and operates a bankruptcy firm. The answer in most cases is “Yes, a Chapter 7 can be extremely useful.” However, he did mention that it depends on each individual’s situation. For example, he stated if you have a high value asset such as a boat and your debt amount owed is less than the value of the asset and you are already behind, then debt settlement can be a very good option.

Post Author: Ben Tejes

Ben Tejes is a co-founder and CEO of Ascend Finance. Before Ascend, Ben held various executive roles at personal finance companies. Ben specializes in Chapter 13 Bankruptcy, Debt Settlement, Chapter 7 Bankruptcy and debt payoff methods. In his free time, Ben enjoys spending time going on adventures with his wife and three young daughters.

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