Think You Might File for Bankruptcy? Take These Steps Now
We have previously written about how important it is to time your bankruptcy just right. Once a consumer files, they cannot add future debts that they incur to their bankruptcy. With the economy in free fall, many people are racking up debt just trying to keep their heads above water. Believe it or not, now is not the time to file. Wait until you fully know how much debt you have incurred so that you can discharge as much of it as possible.
However, it’s never too early to begin preparing for a future filing. If you suspect that you might need to request bankruptcy protection in the future, then there are certain things you should do.
Save Enough for a Lawyer—But Not Too Much
If you file Chapter 7 bankruptcy, you will be responsible for paying your attorney. Those who file Chapter 13 can fold their attorney’s fees into their payment plan, but those filing Chapter 7 don’t have this option.
As a result, you will need to save some money before you file, not just for a lawyer but for filing fees and court costs. But don’t let money pile up in your bank accounts. The bankruptcy trustee could seize this cash if you file for Chapter 7 and distribute any cash you have saved to your creditors.
One option is to invest any available cash in a Roth IRA. You make after-tax contributions and then, when it comes time to withdraw, your distributions are tax-free. Most IRAs are exempted from the trustee in bankruptcy, which makes them an ideal place to park cash. Even better, your savings can grow and contribute to your retirement.
Avoid Withdrawing Money from Your Retirement Accounts
Many people are tempted to dip into their retirement accounts to access cash for living expenses. There are new coronavirus hardship withdrawals that allow people to take out up to $100,000 penalty free from a 401(k) or IRA. Though you must pay taxes on the amount, you can get a refund of any taxes paid if you pay back the money in three years.
This might sound like a good deal—it isn’t. For one thing, many people will not be able to pay back all that they take out, even in three years. So you will more than likely lose a large chunk to taxes. Also, the money will not have a chance to grow if it is out of the account. Yes, the stock market has tanked recently, but it is probably poised for solid growth in the coming years and you don’t want to lose out on this compounding growth.
Meet with a Bankruptcy Attorney in South Florida
There is no substitute for expert advice tailored to your exact circumstances. Consumers who meet with an attorney early often are more pleased with the results of their bankruptcy than people who “wing” it or do their own online research.
Contact Nowack & Olson today. Our Plantation bankruptcy attorneys have helped more than 20,000 people obtain bankruptcy relief and a fresh start. For help with your case, call us today at 888-813-4737.