More Mistakes to Avoid Before Filing for Bankruptcy
The recent coronavirus pandemic has shuttered many businesses and created incredible financial stress. We have no idea when the pandemic will ease, but it could be months from now. Many indebted consumers are contacting us to discuss whether they should file for bankruptcy.
This is definitely an individualized decision, and we are happy to help you think through what is best for you. However, we want to point out some mistakes people should avoid if they are even thinking of filing for bankruptcy. We’ve pointed out several errors to avoid before, but now we have 3 more for people to keep in mind.
Don’t Cash Out Your Retirement Accounts
We’ve seen this mistake several times and it always causes us to gasp. The fact is that your retirement savings are much safer sitting where they are than if you cash them out and stash the money in a bank account.
For one thing, cashing out too early can incur a serious penalty of 10% if you are younger than 59.5. For another, you will immediately owe taxes on that money if you made tax-deferred contributions.
Last but not least, any cash sitting in your bank account could be seized in a Chapter 7 bankruptcy. The trustee can take those proceeds and distribute them to your creditors. So you now no longer have a retirement, but you also don’t even have the money in your possession anymore. Leave those accounts alone.
Avoid Going on a Spending Spree
Some people think, “I might as well rack up charges on this credit card since I will be able to discharge the debts in bankruptcy. Right?”
Wrong! Spending too much money right before filing can look very suspicious. You might not even be able to wipe out those debts if the credit card company challenges them.
Now, if you need to use a card to pay for necessities, like food or medicine, then you can do that. But only use the cards for absolute necessities and be prepared to explain why you spent the money.
Don’t Move Out of Florida
Every state decides what property a debtor can exempt in a bankruptcy. To be honest, Florida is really quite generous in this respect, especially when it comes to your home. Our state’s homestead exemption allows someone who has lived in Florida for at least 1,215 days to exempt the full value of their home in bankruptcy. Your home could be worth $2 million, but it is exempt so long as it is your primary residence. Since a home is for most people their largest asset, this is a huge benefit.
If you move to a different state, their homestead exemption could possibly be much less. For example, Alabama only allows an individual debtor to exempt up to $15,000 in a home. Even if another state provides more generous exemptions for personal property, it is rarely worth moving before filing.
Reach Out to Our Law Firm Today
The Plantation bankruptcy attorneys at Nowack & Olson, PLLC remain open during the coronavirus pandemic. Please call 888-813-4737 to discuss whether filing for bankruptcy is the right move for you.