For individuals who are anticipating an income loss, a temporary layoff or a permanent job loss, following these steps may prevent you from being forced into personal bankruptcy; if you are forced to file for protection under the US Bankruptcy Code, then these tips will help you preserve the assets that you have.
Plan ahead. Do what the corporations do before laying off workers – seek professional financial advice before making your financial decisions or developing a financial plan. Timing is everything if you anticipate tough financial times which may force you into bankruptcy. It is important to educate yourself about your financial options in order to preserve your assets to the maximum extent possible. Most bankruptcy attorneys and financial advisers offer free consultations.
- Stop using your credit cards and pay only with cash. Don’t get into a position where your minimum payments only cover credit card interest and costs. One warning sign of a major personal financial problem is if you are using one credit card to make a payment on another. Another major warning sign is if you are taking out “payday loans.” Do not take out “payday loans.”
- Seek advice from your financial advisor and an attorney knowledgeable with the bankruptcy laws before borrowing from your retirement account, pension fund, or insurance policies to pay credit card and other unsecured debt. Under the Federal Bankruptcy law and Washington State Law most pension or 401K or other retirement account fund assets are exempt. Some of the cash value of a whole life insurance policy is also exempt. This means that if you file for personal bankruptcy, creditors, in most cases, cannot reach these assets. Therefore, you can preserve your retirement funds if you file for personal bankruptcy.
- Consult a bankruptcy attorney to see whether your second mortgage is dischargeable in a bankruptcy. Your second mortgage may be dischargeable in a bankruptcy. If your house value is less than the total balance on your first mortgage, then your second mortgage may be dischargeable. Check out the website NationalMortgageSettlement.com to see if you qualify for any of the mortgage assistance programs that went into effect on October 3, 2012.
- Plan ahead to maintain health insurance for you and your family. Often families are forced into bankruptcy due to costs of illness not covered by health insurance.
- Plan ahead to maintain your car insurance. Many people let their car insurance lapse in order to make payments on credit card debt. If you or a family member are at fault in an auto accident and don’t have car insurance then the cost of your liability for damages may force you into bankruptcy. It is important to maintain car insurance and advisable to carry Personal Injury Protection coverage especially if you don’t have health insurance.
- Trade down on your car so that you lower your monthly car payment. Better yet, sell the financed car if selling will pay off the car loan and buy a car with cash to use while you are having financial difficulties. Seek advice on the laws in your state regarding the repossession of vehicles. In Washington State, creditors can obtain a deficiency judgment once the creditor sells your repossessed vehicle. The deficiency judgment is often so high it forces you into personal bankruptcy.
- Seek advice from your financial adviser or your attorney about refinancing your mortgage loan to lower your monthly mortgage payment. Alternatively, look into scaling down into a smaller/less expensive home. Many individuals are unaware that filing for protection under Chapter 13 of the US Bankruptcy Code allows qualified individuals to stop foreclosure proceedings and gives you up to 60 months to become current on your mortgage arrears at 0% interest on arrears payments.
- Learn about the homestead exemption available in the state where you reside. In Washington State the homestead exemption is $125,000. Seek advice from your financial adviser and attorney on how you can protect the equity in your home from creditors by taking advantage of the homestead exemption. In Washington State, the Federal Homestead Exemption is $21,625 per individual or $43,250 per married couple filing jointly (these amounts are adjusted periodically). Certain exemption exceptions apply to individuals who move to Washington from a different state within two years of filing a bankruptcy.
- Many individuals who convert unsecured credit card debt into secured debt by taking out a second mortgage end up filing for personal bankruptcy anyway. These individuals don’t realize that they could have retained the equity in their home by taking advantage of either the federal or state homestead exemption available by filing for personal bankruptcy.
- Always maintain a checking account at a bank where you don’t have any debt. If you fall behind on credit card payments on a credit card that was issued by the bank where you have your checking and / or savings accounts then that bank can set off the credit card debt with the funds from your bank accounts.
Mary Elizabeth Schmitt of Everett, WA is an experienced bankruptcy attorney advocating for individuals and families in financial distress. These ten tips are meant for informational purposes only and are not intended to be legal advice. Attorney Mary Schmitt has published this information to assist individuals who may be facing difficulties due to the current economic crisis.
Contact Mary Elizabeth Schmitt, Attorney at Law today at 425-252-5567 or 800-207-5567 for all of your legal needs.