Are You Thinking About Filing Bankruptcy? Don’t Try These Three Things First.

When a client comes to me seeking help to file bankruptcy, many times they have tried something else first.  Whatever they tried didn’t work.  It was also time, money, and headache that could have been avoided.  Sometimes there are strategic reasons to wait to file bankruptcy.  But usually, the sooner you file bankruptcy, the sooner you eliminate your debts and begin making a financial recovery.

If you are considering doing one of these three things to try and get out of debt, call me first.  It may do more harm than good:

 

  1. Don’t try to make a debt settlement program work.

Bankruptcy is cheaper, takes less time, and stops lawsuits from your creditors.  If you sign up for a debt settlement program, your creditors aren’t getting paid and after a while they are likely to sue you.  This is usually about the time many of my clients decided debt settlement was not worth it.

 

  1. Don’t borrow money from friends and family.

You’ll feel morally obligated to repay them, and if you do, the court might view the repayment as fraudulent and your friends or family may have to give the payments back.  Do this and you may have to wait before you can file bankruptcy.

 

  1. Don’t use your 401(k) to pay down debt.

You’ll need the money for retirement and you’ll get to keep all of it when you file bankruptcy.  Use it to fend off your creditors before filing bankruptcy and you won’t get that money back.  It may also trigger tax consequences, and if you can’t afford the tax bill when it comes due, you may not be able to discharge the debt in a Chapter 7 bankruptcy.  If you file a Chapter 13 bankruptcy instead, it may increase the amount of your monthly plan payments.

 

Talk to me first.

Don’t try figuring it out on your own.  I will tell you if bankruptcy is the best option or if there is another solution that would work better.  These solutions might make sense if bankruptcy isn’t a workable solution.  Usually, it just delays the inevitable.  The longer you take until you file bankruptcy, the longer it will take to get a fresh start.

You Don’t Lose Your Retirement Accounts in Bankruptcy

You made responsible choices and contributed to a retirement account, and now that nest egg has grown significantly.  Don’t worry about losing your retirement savings in bankruptcy, because it’s exempt.  Under North Carolina exemptions, all IRS qualified retirement accounts (employer pensions, 401(k)’s, Traditional IRA’s, Roth IRA, etc.) can’t be touched by the bankruptcy court.

If you are a state or municipal employee, those retirement benefits are exempt too.  This also applies to retirement accounts from the federal government, as well as other states and their municipalities.

If you haven’t filed bankruptcy yet, but are considering withdrawing from your retirement benefits to pay down debt, please call me first.  Many times this just delays the time before you end up filing bankruptcy, except now you’ve spent your retirement funds.  Funds you would have kept had you filed bankruptcy first.

Every dollar that you spend from an exempt source is a dollar that you could have otherwise kept after filing bankruptcy. The sooner you file bankruptcy, the sooner you will stop making payments on old debts that are keeping you from getting a fresh start.