How far should you go to try and pay your debts before  considering filing bankruptcy? Do you potentially mortgage your future to pay today’s debts? Often, by the time a person seriously considers filing Bankruptcy and calls my office they have already
made at least one mistake in their efforts to pay their debts. These mistakes can be costly and we can help you avoid them if you call early. Continuing to pay your unsecured creditors until you completely drain your future resources can result in not only  harming your future finances, it can create new debts that may not even be discharged in bankruptcy.

A few examples of behaviors that can lead to trouble are listed below:

401k Loans

If you take out a loan against your 401k plan, you will have to repay that loan and
bankruptcy cannot help that. If you default on repayments, distribution of the full loan
proceeds will be declared for that tax year. It would be best to not take a 401k loan to pay
off debt before filing bankruptcy. In fact, your retirement accounts are completely
protected when filing for bankruptcy so having a significant balance in retirement
accounts does not mean you risk having the court take those funds.

Borrowing Against Your Home Equity

If you can pull money out of your home to pay your credit cards or personal loans
it is generally not a good idea to do so. First, those debts could have been discharged by
filing bankruptcy and second there is now a secured debt that no longer can be cleared by
filing.

Balance Transfers

A creative solution for some who struggle with debt is to take one loan balance
and pay it off by creating another debt with a lower interest rate. In theory, it makes sense
to reduce the amount of interest you pay on any debts. However, if you are considering
bankruptcy you should not attempt to do this before filing because the creditor you
transferred your balance(s) to can challenge your discharge by claiming fraud for
incurring the debt when you knew you would be filing bankruptcy.

Ignoring your Debt

All too often, debt can feel paralyzing. It is important to resist this feeling because
inaction can turn a relatively modest balance into an overwhelming mountain of debt.
First, interest and late fees will accrue while the debt remains unpaid. If a creditor
remains unpaid for a significant amount of time, they can refer your account to a law firm
to file a lawsuit against you. If they get a judgment, the creditor can get payment by
putting a lien on your property, garnish your wages, or levying on your bank account.
Even if you are facing a lawsuit or have a judgment against you, it is not too late
to file. By filing for bankruptcy, the automatic stay will prohibit the collection of the
balance being sought through the lawsuit or the judgment itself and will likely discharge
the liability in its entirety. Ignoring collection efforts can and will lead to a snowballing
effect that will leave you much worse off than if you had just filed for bankruptcy sooner
than later.
Are you in trouble with debt and considering all of your options before
bankruptcy? Call an attorney before you make one of these potentially expensive
mistakes. The earlier you get advice on your situation the more likely you will achieve
the best outcome possible.
If you have any questions about filing bankruptcy please feel free to reach out to
your Modesto bankruptcy attorney at 209-438-4990.

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