Why You Should Consider Bankruptcy Planning Now to Protect Your Future Options
Filing for bankruptcy requires careful planning and strategic decisions. Here's what you need to know if bankruptcy might be in your future.
Consult a Bankruptcy Attorney Early Get expert advice from a bankruptcy attorney as soon as you anticipate financial trouble. Free initial consultations are typically available through the National Association of Consumer Bankruptcy Attorneys. Early guidance helps you make better financial decisions and achieve better outcomes.
Don't rush to file, though. Your situation could improve or worsen, and since Chapter 7 bankruptcies can only be filed every eight years, timing is crucial.
Protect Your Retirement Funds Never use retirement money to pay debts that could be discharged in bankruptcy. Even though coronavirus hardship withdrawals allow penalty-free access to retirement funds, these accounts are typically protected from creditors in bankruptcy.
Manage Your Cash Wisely While maintaining emergency savings is important, excess cash in bank accounts can be seized by creditors. Consider moving extra funds to protected accounts like Roth IRAs, where contributions can be withdrawn tax-free while remaining creditor-protected.
Avoid Selling Assets Don't sell possessions to pay down debt without consulting a bankruptcy attorney first. These items might be protected in bankruptcy or more valuable to you later. Similarly, don't give away assets, as bankruptcy trustees can recover them.
Take Advantage of Forbearance Use available payment postponement options from lenders, especially for unsecured debt that could be discharged in Chapter 7 bankruptcy. This helps preserve cash for essentials and legal fees while you evaluate your situation.
Keep in mind that Chapter 7 bankruptcy typically costs around $1,500, while Chapter 13 filings start at $3,000. Consider these costs when planning your financial strategy.
The trend toward bankruptcy is expected to increase significantly due to economic disruptions, making it crucial to understand these principles and act strategically to protect your financial future.