Common Debt Mistakes

When confronted with unmanageable debt, consumers often make mistakes that result in more debt or loss of assets that could have been protected in a bankruptcy. Some of the most common errors include waiting too long to speak with an attorney, early withdrawal of retirement accounts, hiring debt consolidation counselors, and avoiding bankruptcy out of fear of eternal bad credit.

Most people want to avoid bankruptcy at all costs. In some cases it is possible to delay or avoid bankruptcy. Often times when individuals wait too long to consult an attorney, they wind up with court judgments against them. A court judgment allows creditors to place a lien on property owned by the debtor. When a creditor has a court judgment in its favor, it can garnish wages and seize bank accounts. In extreme circumstances, outstanding judgments can lead to the issuance of a bench warrant, which can land a debtor in jail for failure to respond to a court order (not specifically for failing to pay a debt).

If an individual is about to default on any debt or is juggling debt by using balance transfers and cash advances or paydayloans, should be consulting with an attorney to determine what options are available to protect assets and overcome debt. Even though it is typically never too late to file for bankruptcy, filing when the debt becomes unmanageable, beats filing after wages and bank accounts have already been garnished.

When faced with large amounts of debt, some people turn to their retirement plans. Early withdrawals from IRA and 401(k) plans typically result in an early withdrawal penalty and are taxable as well. In rare cases, it may be beneficial to use retirement funds to eliminate debt but in most cases, the money should be left alone. Retirement funds are meant to provide security in retirement. In a bankruptcy, and in general, creditors cannot touch your retirement funds. If withdrawing a small portion from your retirement accounts will not completely resolve your financial problems then it is probably wise to leave the money where it is and consider other options.

There are a lot of companies advertising debt consolidation or counseling services. While some may be legitimate, many are in the business to make money. Many people who try this route wind up in bankruptcy after spending more money and incurring additional debts due to these companies that said they were there to help with debt. Discussing your needs with an experienced and licensed lawyer will help you determine what your options are. A reputable bankruptcy attorney will assess your situation and advise you about your options and make a determination as to whether bankruptcy is the best option for you.

Credit counseling agencies and your creditors would like you to think that filing for bankruptcy will forever ruin your credit. The fact is, even if your credit has been good, if you are about to miss a payment or default on a loan, your credit will suffer greatly. Most, if not all, people in need of bankruptcy will suffer from bad credit scores if nothing is done to resolve the debt. Filing bankruptcy for many, actually helps clean up credit reports and for some clients has resulted in higher credit scores as soon as a year after filing bankruptcy. Most debtors are able to finance a vehicle within days of filing for bankruptcy and many report receiving credit card offers almost immediately after their bankruptcy is filed. Even those whose credit scores are slower to go up, report that the relief experienced allows them to move forward with their lives when they thought they would never overcome their debt.

If credit card debt, medical debt, mortgage debt or business debt are becoming unmanageable, don't wait another day. Call Greenwald & Hammond to speak with a caring, knowledgeable attorney who can advise you of your options for managing your debt.

Submitted by:

Mindy Greenwald, Esq.
Bankruptcy Attorney