Whether it’s a flood, tornado, or fire, a natural disaster can destroy your financial security and leave you without a place to live and sky-rocketing debts. Recently on our bankruptcy forum a user asked, “If my home and possessions were destroyed in a natural disaster will filing bankruptcy help me?”
Benefits of filing for bankruptcy following a natural disaster
Before considering filing bankruptcy for any reason, including a natural disaster, you need to take a hard look at what you are trying to accomplish. Do you have property you are trying to protect? Do you have unsecured debts such as credit card bills, unsecured personal loans, or medical expenses that you cannot pay?
If you do, bankruptcy may be able to save your home and discharge certain types of unsecured debts. If, however, your debts are debts which cannot be discharged- certain tax debts, student loans (exceptions apply), or other secured debts- filing bankruptcy, even after a natural disaster, may not improve your financial situation.
Steps before filing bankruptcy after a natural disaster
If your home has burned down or been destroyed by a natural disaster, before considering bankruptcy, you need to take some other simple steps.
- Talk to your creditors
Talking to your creditors is important whether you are in financial danger from a natural disaster or some other reason. Creditors may be willing to give you some extra time or allow other options for repaying debts.
- Determine if your insurance will pay for your loss
If your home was destroyed in a natural disaster it’s important to understand what damage the insurance company will cover and how long it will take to make the repairs.
- Determine if you can generate extra income to pay your debts
If you are working a 40 hour work week the last thing you may want to do following a natural disaster is work more hours, but it may be one option for a few months or just until you can get back on your feet.
Filing bankruptcy after a natural disaster
If you have reviewed all of your choices following a natural disaster and you believe filing bankruptcy is the right choice, it’s time to decide whether you can file Chapter 7 or Chapter 13. Although Chapter 7 bankruptcy will discharge certain types of debts, as mentioned above, other debts are not discharged and will remain after filing bankruptcy.
Additionally, many debtors will not qualify for Chapter 7 bankruptcy because their income is either too high or they have too much discretionary income. If this is the case, you will have to file Chapter13 bankruptcy and repay a portion of your debts.
Bottom line about natural disasters:
If a natural disaster has destroyed your home you may have the option to file for bankruptcy protection, but filing bankruptcy is an important decision and should not be done with first considering your other options.
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