August tends to be pretty quiet. Some people are at the beach. Others are getting the kids ready to head back to school. And others, like yours truly, are meeting with clients.
Often when I meet with people for the first time, I learn that they have done everything they can to avoid meeting with me. Sure, I am told by colleagues and clients alike that I am funny, affable and an otherwise nice guy. But if my clients had a choice between seeing me – Mr. Funny Affable Nice Bankruptcy Attorney (or Mr. FANBA) – and getting a skin biopsy with less than minimal anesthetic, they’d opt for the dermatologist and would even ask for an expedited appointment.
The debt stuff can stink. It can feel overwhelming. It can eat away at you and keep you up at night. Then, with debt collectors calling, and the constant “if only I had done something differently…” thing that runs through almost everyone’s head, it only makes a painful skin biopsy seem like a day at the beach. The problem is that some people wait so long that they do things that are not particularly helpful to themselves. In some cases they even make my job more difficult. Here are my top five avoidable mistakes:
1. Refinance and roll credit card debt into one home equity loan payment. Mortgage brokers will tell you you’re saving money. Here are the facts: the real estate market is heading south. The economy is as stable as a pipeline in Alaska, and the future is far from predictable. It’s an election year. Some one is likely to claim the economy is just fine. Don’t believe it. And do not compromise the equity in your home to pay unsecured debt (such as credit cards and lines of credit) that you’re now having a tough time paying (or expect to have a tough time paying in the future).
2. Shop. While an extreme example, folks who take the family to Florida the weekend before meeting with me courtesy of the good people at American Express don’t usually end up being my clients. And if they end up someone else’s, they end up in trouble. Interest rates and late fees will push you deeper in debt. Don’t make the situation worse by using credit cards for items you know you cannot afford and you know (or expect) you’ll never pay back, especially if you’re contemplating bankruptcy.
3. Clean out retirement accounts to pay off debt. In most cases, people with retirement accounts will not lose them in bankruptcy – although individual circumstances may vary. As everyone with a retirement account knows, if you take a disbursement you’ll get hit with taxes and penalties. If the disbursement is not enough to pay off the debt, you’ll be stuck with taxes, penalties and debt. Before you explore whether this is a good idea, run some numbers. Can you afford the taxes? If you cannot afford the taxes and pay off your other debt, leave your retirement account alone. Depending on the circumstances, you will not be able to include these taxes in your bankruptcy discharge.
4. Borrow money from a friend or family member. Actually, this is not a bad idea if (a) it’s enough to pay all of your debt in full; (b) your relative or friend is offering better rates and affordable payment terms than your credit card companies…or the local loan shark (I sometimes confuse the two); and (c) you cut up your credit cards and take an oath to never use credit cards while you’re paying your other debt off. Unfortunately, I meet with folks who owe money to Chase, Amex, Sears and their friends and family. Then I hear “but we’ll keep my family’s loan out of the bankruptcy.” No-can-do. All debt is included and listed. With that said: Think before you borrow. It’s one thing if American Express doesn’t want to speak with you. The holidays might not be as pleasant however if your father-in-law doesn’t want to speak to you.
5. Hide or transfer property. Don’t. Enough said there.
There are many rules in bankruptcy, but if you strictly adhere to these five before you even make that appointment to see a bankruptcy attorney, the process will be a lot less complicated and stressful. More than likely, it will be less expensive too.
Related posts:
- Costly Bankruptcy Preparation Mistakes
- The Importance of an Informed Decision
- Top Ten Reasons to Hire an Attorney for Your Chapter 13 Case
- Can Declaring Bankruptcy Improve Your Credit Score?
- The Social Acceptance of Bankruptcy
Tags: Bankruptcy
