Postponing Bankruptcy Is Not Always a Good Idea
Posted By Steven J. Richardson on May 19, 2009
I tell all my clients and prospective clients that my office is the last stop on the train. In other words, people should try every other option first before filing. Many have gone to (reputable) debt counselors to work out payment plans or taken out home equity loans to consolidate their debt at a much lower interest rate. However, there is also such a thing as false hope, and that can sometimes put you in a worse situation in the long term.
What I am referring to here is the plundering of pensions and IRAs to stay afloat financially. Many clients come to me with pension loans or outright empty investment accounts because they were trying to forestall an inevitable bankruptcy. This is an option that should only be taken with the advice of a financial professional, as it can sacrifice your future in order to save your present. This is for several reasons:
- Pension loans, even if you pay them back in full, can rob you of significant financial growth needed for retirement. If the money is not in the fund, it can’t grow.
- The tax consequences of an outright disbursal from a pension or IRA can not only create a new debt that might make the solution less attractive, but that debt may well be non-dischargeable in an eventual bankruptcy filing.
- In taking a disbursal of funds from a retirement account you are, in effect, sacrificing your future financial well-being in order to try and save your current predicament.
People hold off on filing bankruptcy because they are afraid of what it will do to their credit. However, the irony of the whole situation is that most people who are contemplating bankruptcy usually have bad credit anyway. Do not run the risk of making a bad situation worse; talk to a bankruptcy professional before you do something drastic like sacrifice your financial future.
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