As the economy continues its downward spiral, many experts are fearing that the US could end up in a depression. With the instability in the Middle East, many think that the days of five dollar per gallon gas is not far off. This could be the one-two punch that sends our economy into a tailspin. In 2010 there was 1.6 million bankruptcies filed and in 2011 that number is expected to increase. Most Americans are pretty resilient and hope that their financial situation will get better. The average citizen carries credit card debt in the amount of $20,000. With all of these numbers, the perfect storm is being created that will force many more into bankruptcy filing. There are a few things that people should know better in this situation.
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When being financially strapped, the last place to look for money is in your retirement fund. This is a frequent mistake that many people make. Many individuals think of it as a savings account and take money out of their 401(k) to catch up on their credit card debt. All retirement funds are protected from creditors in a bankruptcy filing. The only way creditors can get at this money is if you voluntarily give it to them. There is also the consideration that early withdrawal causes an additional tax problem for the debtor. If you think there's a possibility that you might end up filing bankruptcy, leave your retirement fund alone.
Another really bad idea is when a debtor starts transferring assets when they run into financial trouble. Most transfers can be traced and if the creditors find out that the debtor is trying to hide assets by transferring them, they will claim it was a fraudulent conveyance. This can restrict a person from filing bankruptcy in the future and might cause the debtor to even lose the bankruptcy discharge they need dearly. Always consult a bankruptcy attorney before attempting to move ownership of any property. Many times the property can be protected by the exemption laws when filing bankruptcy.
When your income is reduced, never burn through all your savings, just to pay your unsecured debts. An individual should try and keep between two and six months of living expenses in their savings account. You should always have a little bit of cushion just in case you lose your job or something else unexpected happens. Always consider the priority when paying debts. Pay your mortgage or rent the first and pay the end secured debts with the extra liquid cash you have available. If there is no money left over after paying your expenses, you should definitely consider filing bankruptcy. There is a lot of information that one needs to consider when deciding on what financial path to take. Take the time and consult with a bankruptcy attorney to see if bankruptcy would be beneficial to your financial situation. Depending on your situation a bankruptcy attorney will evaluate your assets and income and let you know if you are a candidate to file Chapter 7 or Chapter 13 bankruptcy. Don't wait until creditors are suing you and you burn through your 401(k) trying to keep them off your back. Be proactive and get on the road to financial recovery.
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