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Start Thinking of Bankruptcy Now as a Possible Option Later

| Opinion | May 21, 2020

by Ray Bulaon

The coronavirus has put a lot of strain on people’s ability to pay their debts. With a lot of employees getting laid off in massive numbers, they are staying at home to keep themselves and their families safe. In the meantime, however, the bills still continue and without any income, it is becoming increasingly difficult to catch up as their debts begin to snowball.

If you’ve lost your job and don’t know if you even have one to go back to, bankruptcy may be an option for you down the road. And although that may sound grim, it is the reality that everyone is now facing. For some, this may still be a big question mark and they are waiting to see what happens in the next few months. For others, it is the writing on the wall that cannot be ignored. The government and most banks have provided some kind of temporary relief. Most lenders have allowed suspension of payments for a few months on house, car and credit card payments. But be mindful that you will still need to make up the missed payments at some point. There’s no such thing as a free lunch.

It is best that you start thinking defensively in terms of how you can protect your home, car, savings, retirement plans or other assets you have. Remember that you need to put yourself and your family FIRST. If you have limited income or just living off your savings at the moment, figure out the best way that you can survive while spending as little as possible. Go through your monthly expenses and figure out what you can cut out for now. Pay only essential bills, those that are necessary to keep a roof over your head, keep the lights on and to put food on the table. To some people, this is something new because they never had a monthly budget and never took the time to looking at their finances in detail. But we’re living in difficult financial times and if there was ever a time where you had to watch your expenses like a hawk, this is the time to do it.

If you can help it, do not touch your retirement money (example: IRA and 401K accounts). First of all, be aware of the tax consequences of cashing out your retirement plan by consulting with your tax professional. Secondly, people who think they may be headed towards bankruptcy soon try to spend their retirement money for fear that they may lose it later if they do end up filing bankruptcy. Wrong. 401K plans and IRA’s are actually exempt in bankruptcy and they cannot be touched for distribution to your creditors. This is just one common mistake that a lot of people make because they don’t take the time to consult with an attorney and try do things on their own. The moment you convert that retirement plan into cash, you may actually risk losing that money since the cash is no longer retirement money; it’s just cash in the bank.

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Another mistake that people make is giving away property or selling them for cheap to family and friends in order to get cash or in many cases, just to get the property out of their name in anticipation of a potential bankruptcy filing. If you end up filing bankruptcy later, this could be deemed a fraudulent transfer and the bankruptcy trustee could end up suing that family member that you paid money or transferred property to.

One final word: If you think there’s a possibility of filing bankruptcy later if things don’t get better for few in the next few months, consult with a bankruptcy attorney before making any financial moves. You may not need to file bankruptcy at all or you may need to postpone it and only do it if necessary. But if it becomes unavoidable eventually, the best thing to do is to plan ahead and avoid doing things that could become a problem in your bankruptcy case later.

For a free evaluation of your case, please call our office at Toll-Free 1-866-477-7772 to schedule a free consultation. Let us help you.

Due to the virus lockdown, I am currently offering consultations via phone or video. Please call the office to schedule your appointment with me. Questions? Email me at gethelp@rjb-lawoffices.com.

(None of the information herein is intended to give legal advice for any specific situation. Atty. Ray Bulaon has successfully helped over 5,000 clients in getting out of debt. For a free attorney evaluation of your situation, call RJB Law Offices at toll free 1-866-477-7772.)

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