N is for Never

You finally decide to file bankruptcy. I do not expect you to be a lawyer, or to even know the law. There are two things you should never ever do financially, especially in the lead up to bankruptcy.  Each basically involves debt consolidation instead of bankruptcy. When should you do them? NEVER!

The things you should never do are:

    1. Take money from your 401k, 403b, pension, or IRA to pay bills
    2. Convert unsecured debt to secured debt.

Using retirement money to pay bills

The first page I posted to this website was a warning not to use your 401k, 403b, IRA or pension as an ATM. Retirement funds are protected from creditors and collectors for a reason. That is money for later in life when you can’t work anymore. Bill collectors can only get to it if you take the money out and give it to them. It can’t be garnished or attached by a court if you are sued.

The retirement funds are exempt. Not even the bankruptcy court or trustee can get to them. So why do you insist on doing for them what they can’t do themselves?

Even worse is when you take your 401k, 403b, IRA or pension money to pay off your car. If the equity in the vehicle exceeds Ohio’s exemption, the trustee will just take the car, sell it, give you the exempt funds, and give the rest to your creditors. No 401k, no bills, but no car as well. If you wait till after you file bankruptcy you can have the car, no bills, and have the 401k. Then you can decide if you want the car bad enough to eat Ramen noodles in your old age.

Want to see steam come out my ears? Cash out your 401k, pay off some of your bills, and them come to see me for a bankruptcy. Seriously, I am just trying to save one of your most important, irreplaceable assets from your good intentions.

Converting debt

I very recently filed bankruptcy for a couple. They wanted me to post this as a warning to others who are thinking of debt consolidation instead of bankruptcy. They tried everything to avoid it. Years ago they went to a finance company to borrow money to pay off their bills. Sound like a great idea? The finance company wanted to do a home equity loan because of the amount. Bad news boy and girls. This is a politically correct name for a second mortgage. So now they have two mortgages, and in a short while they ran the credit cards back up.

The easy answer…401k loan after loan after loan. Once that was gone they started borrowing from the credit union to pay bills. The credit union finally refused anymore money. They were to the point they could no longer pay for the home, so they did the one thing they tried hard to borrow their way to avoid, they called the local bankruptcy lawyer.

Now they will get rid of the debt, but they now have no house, no 401k, and the husband wants to retire. Had they filed bankruptcy in the first place they could keep their home and have one, very reasonable mortgage payment. He would also have sufficient funds for a comfortable retirement and not have to rely on social security. A lifetime of hard work down the tubes, and it all started with a second mortgage loan because he thought bankruptcy was bad.

Bankruptcy is a tool, just like the ones he uses in the factory. Used correctly, it can have marvelous results. Don’t be fooled by well meaning people who tell you to do anything to avoid the B word. There is a right way and a wrong way to approach debt. Get the facts before you clear out your 401k, 403b, pension or IRA savings, and home value. This is the fourth time I have written on this topic. Just believe what I am saying. Do you still think debt consolidation instead of bankruptcy is a good idea?

Other attorneys playing the bankruptcy alphabet game:

  1. Omaha and Lincoln, Nebraska Attorney, Ryan D. Caldwell writes of Nondischargeable Debt.
  2. New York Bankruptcy Lawyer, Jay S. Fleischman picked a great topic, Naked.
  3. Northern California Bankruptcy Lawyer, Cathy Moran wants you to know what is Nondischargeable.
  4. Colorado Springs Attorney Bob Doig covers Notice.
  5. Metro Richmond Consumer and Attorney, Mitchell Goldstein addresses No Asset.
  6. Metro Richmond Consumer and Bankruptcy Attorney, Mitchell Goldstein also says N is for Nondischargeable.
  7. Honolulu Bankruptcy Lawyer, Stuart T. Ing tells you about the No Asset Report.
  8. Wisconsin Bankruptcy Lawyer, Bret Nason has a great ideat that N is for NACBA.
  9. Jacksonville Bankruptcy Attorney J. Dinkins G. Grange writes N is for Negative Notice.
  10. Miami Bankruptcy Attorney, Dorota Trzeciecka claims N is for Non-exempt Property.
  11. Taylor, Michigan Bankruptcy Attorney, Chris McAvoy blogs N is for Notice.
  12. Los Angeles Bankruptcy Attorney, Mark J. Markus says N is for Numbers and New Bankruptcy Laws.
  13. Marin County Bankruptcy Lawyer, Cate Eranthe thinks N is for California Northern Bankruptcy Court.

Creative Commons License photo credit: TooFarNorth

 

 

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Bill Balena

Bill Balena is a Bankruptcy attorney with an office in Westlake, Ohio. I represent consumers in Chapter 7 and Chapter 13 cases. I am also an accomplished dui/ovi trial attorney.

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7 Responses to N is for Never
  1. [...] like beating a dead horse anymore than you like seeing it happen. I have written on this before. I witness clients who make this mistake time and time again. Sometimes they make the mistake [...]

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