Many employers show their appreciation for their staff by issuing generous bonuses during the holiday season. These bonuses can go a long way in spreading Christmas cheer, or just helping overwhelmed households catch up on bills. If you anticipate receiving a holiday bonus, you may have big plans for that extra check. But if that bonus would be just a drop in the bucket if used to pay off your debt, there are special concerns that could be relevant around spending it. Bankruptcy is a legal matter that can be approached strategically, meaning the debtor discharges as much debt and protects as many assets as possible. Read on to learn more about the pros and cons of using a holiday bonus to pay off debts. If you’re wondering if bankruptcy would be a better way to address your debts than a holiday bonus, you can discuss your situation with a member of our team today. Contact Atlas Bankruptcy Attorneys for your free consultation by phone at 602-649-4949 for more.
Pro: Relieve Stress & Enjoy The Holidays
There are several signs that someone is struggling with debt that they can’t afford to pay. If you’re reading this article, at least one of them may apply to you. Someone in debt probably receives several phone calls per day from debt collection agencies. Ignoring those calls can result in the person missing important communications from work, family, and more. Once those debts are repaid, your creditors will have no reason to contact you, which could be a draw to paying off debt with a holiday bonus. But there are other ways to get creditors to stop contacting you so you can focus on your family and enjoy the winter holidays. For example, a pre-bankruptcy debtor who retains a bankruptcy firm can direct their creditors to contact their attorney about their debts moving forward. All other forms of collection must stop once the debtor files their bankruptcy petition and activates the automatic stay.
Con: More Spent On Debt, Less For The Holidays
If you are receiving a sizable holiday bonus, you are probably feeling tempted to spend at least some of it on making your loved ones’ holiday season bright. Any money poured into paying off debt is money that can’t be spent on the holidays and other expenses. Upon first read, spending a holiday bonus on debt rather than the holidays may seem like a much wiser decision. But here, a bonus recipient should analyze whether or not they may file for bankruptcy in the future. If so, spending a bonus on debt- especially dischargeable debt- is essentially throwing money down the drain. While holiday expenditures aren’t exactly considered a necessity, they can contribute to lifelong memories with your family that can never be replaced. Review your entire financial situation before deciding how much of your bonus is appropriate to spend on debt, and how much is appropriate to spend on the holidays.
Pro: Improve Your Credit Score
If you are using debt to pay off accounts that are in default, you should see a positive effect on your credit score almost immediately. This effect will be less pronounced if you use your holiday bonus to pay off debts for which you are current on payments. Improving your credit score may be important if you have big plans for the new year, like applying for a home mortgage or purchasing a new vehicle. Having a better credit score can secure you a lower interest rate in addition to increasing your odds of approval.
Con: Does The Bonus Pay All Of Your Debt?
One downside to using a holiday bonus to pay off debt is that it might not fully alleviate your financial situation. Let’s say you receive a bonus of $5,000, which is only a fraction of your medical debt, before even getting to credit cards, back taxes, etc. Spreading out the bonus between your creditors may barely pay your interest, and might not be enough to keep them at bay from collection efforts. Pouring all of your bonus into one debt will only cut off one head of the Hydra monster that debt can create. And unless you have a new source of income lined up for the new year, there will be no extra infusion of income in the form of a bonus hitting your bank account until this time next year. Before paying off debt with a holiday bonus, look at how much of your liabilities this will actually resolve. If you will still be left with more debt than you can pay, consider bankruptcy to clear your debts and use your bonus for something more meaningful.
Pro: Using The Bonus On Secured & Priority Debts
There are different categories of debt, entitling creditors and debtors to different treatment under the law. Secured debts are those with an asset attached as collateral. If the debtor falls behind on payments, the assets can be repossessed to satisfy the unpaid balance. A home mortgage is a secured debt, as is an auto loan. If you pay for the price of your mobile device monthly in your phone bill, that is technically a secured debt. Priority debts don’t have an asset attached as collateral, but still receive special treatment. Recent tax debts and unpaid child support are two frequent examples of unsecured debts that come through our offices. These debts can’t be cleared by chapter 7 bankruptcy, and must be paid in full in chapter 13 bankruptcy. If your debts are primarily from these sources, it may be worth it to pay them with your holiday bonus, as they can’t be cleared in bankruptcy.
Con: Using The Bonus On Unsecured Debts
Some of the most common examples of unsecured debts are credit cards, personal loans, and medical bills. Repossession deficiencies and certain taxes can also be considered unsecured debts. These types of debts are low on the totem pole when it comes to collection, and are the easiest to discharge in bankruptcy. If your bonus would primarily be used to pay off unsecured debts, look into whether these debts could also be cleared by bankruptcy. If so, you may have more to gain by filing a petition and keeping your holiday bonus for something else.
Would Your Bonus Be Better Spent Towards Bankruptcy? Let Our Team Help You Decide With Your Free Phone Consultation
There is no denying that paying off debt can be a worthwhile use for your holiday bonus. But if it is only temporarily delaying an inevitable bankruptcy filing, there may be other ways you would rather spend that money. This is not a determination that should be made hastily and without the proper research and analysis. At Atlas Bankruptcy Lawyers, we can help you make that determination for yourself without any financial risk or obligation. This is your chance to have all of your bankruptcy questions answered and see if you qualify for Zero Down financing. Learn more today with your free consultation at 602-649-4949 for more information.
