Thousands of people are experiencing financial hardship right now. A sluggish economy, uncertainty in the markets and a rising cost of living can make it difficult to climb out from accumulated debt. If you have worked for many years and have saved up a sizable nest egg, it may be tempting to pull money from those healthy retirement funds if you now face financial difficulties. However, a very important fact to consider is that most retirement accounts are protected in a bankruptcy. Before you make any decision on how to proceed, it is advisable to speak with an experienced local bankruptcy attorney and fully evaluate all of your options. In the meantime, there are several things you should avoid doing:
Do Not Dip Into Retirement Accounts To Pay Off Debts
Filing for bankruptcy provides the opportunity to have many debts completely wiped away including items like credit card debts and medical bills. Many people are unaware that retirement accounts are actually protected as part of a bankruptcy, and so they pull money from their retirement accounts to pay off debts. The problem with this strategy is that it can be very difficult to later replenish those accounts, particularly later in life. Nearly all retirement accounts and pension plans are exempted in Chapter 7 and Chapter 13 bankruptcies.
Do Not Rack Up New Debt
Barring essential expenses such as food, rent and utilities, avoid racking up new debt prior to filing for bankruptcy. It is not a foregone conclusion that all debts will be discharged during a bankruptcy. In fact, if an individual accrues additional debt within 90 days before the filing date, the creditors may make an accusation that there was never any intention of paying off this new debt. The individual is responsible for any debts that are not discharged. Debt that is accrued on luxury items prior to a bankruptcy is considered fraud and should be avoided at all costs.
Do Not Delay So Long That A Creditor Takes Legal Action
Time is of the essence for those who have outstanding debts and have fallen into collections. It is important to act quickly before the situation escalates. If a creditor files a lawsuit and the case makes it to judgement, those debts will not be eligible for dismissal as part of a subsequent bankruptcy. Conversely, as soon a debtor files for bankruptcy, an automatic stay is put in place, which halts all collection efforts and actions.
Do Not Repay Loans Selectively
Before filing for bankruptcy, it is generally advisable to halt any repayment of debts within 90 days of the filing date. It is also important to avoid selectively repaying loans to friends or family members within a year of a bankruptcy filing. Creditors could claim that this was “preferential transfer”, and they could go after the friends or family to recoup their funds. Instead, it is better to leave any loan repayments until after a bankruptcy is complete.
Do Not File Before Getting An Influx Of Assets
If you are fortunate enough to receive an inheritance, a large monetary award from a lawsuit or an especially large income tax refund, it is best to avoid filing for bankruptcy within a year of receiving those assets. The court will be unlikely to discharge debts if the new assets make you sufficiently financially solvent to pay off those debts. An experienced attorney will thoroughly review all details of your unique financial situation before advising whether it would be prudent to file.
Do Not Refrain From Paying Taxes
Two years of income tax returns are part of the required documentation for a bankruptcy because they help determine past and current earnings and assets. Income tax returns also settle the matter of potential property tax claims. It is generally not advisable for an individual who has not filed income tax returns to file for bankruptcy.
Do Not Make Any Decisions Before Consulting With A Local Attorney
If you are overwhelmed with bills and struggling to make mortgage, insurance and auto loan payments, speak with a local bankruptcy attorney before liquidating your hard-earned retirement savings accounts. At Jeffrey M. Sirody & Associates, our trusted attorneys will review your debts and assets and take the time to fully understand your personal financial situation before providing a recommendation. Call 410-834-4794 for a free consultation.