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What single moms need to know about bankruptcy

If you are a single mother, then paying the bills to keep your family afloat is likely one of your top priorities. However, there may come a time when it all gets to be too much. Every day brings a new bill payment request, and you cringe every time the phone rings in case a collector is calling. You are stressed and unsure how to pay the rent or the electricity bill. Your kids are stressed too.

Bankruptcy may be able to help you and provide a fresh start. Here are some things you need to know.

You probably will not lose much

In fact, you could end up pleasantly surprised at what you are able to keep. Many people retain their house and car, for example. Your retirement account, 529 college tuition savings and some medical savings account would be off-limits. Unfortunately, some people do not realize this, and they withdraw funds from these accounts to pay down debt. Sometimes, it is not enough. They have to file for bankruptcy anyway, and they have lost that money in the accounts.

So, one of the top things for you to know: There is no need to withdraw money from qualified accounts such as your 401(k). You will not lose that money. 

There are two types of bankruptcies to think about

Chapter 7 is what most people tend to think about when they hear "bankruptcy." You have to pass a means test based on your income, household size and the median income figures of a single person in Ohio. Actually, "pass" may be a misleading term here, as Chapter 7 qualifiers usually make less than the median income for their situation. If you make more, the court may decide you are capable of repaying some of your debts and direct you to Chapter 13.

In Chapter 13, you follow a plan to pay at least a portion of your debts over the next few years. In Chapter 7, your unsecured debts such as credit card bills and medical bills should be wiped out. Debts such as student loans will probably remain but become more manageable to pay.

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