A lot of people are experiencing tough economic times, so you’re certainly not alone if your bills are mounting and you don’t see any way back.
If bankruptcy is starting to look more and more like it’s your only option, it’s wise to take some steps to prepare. At the very least, you should take stock of your monthly expenses.
However, you also need to prepare for bankruptcy by avoiding some potentially disastrous mistakes. Here are the top things you should not do if you are heading toward bankruptcy:
- Don’t tap into your retirement savings. When money is tight, it’s tempting to drain your 401(k) or individual retirement account (IRA) to pay some of your creditors. But if you realistically believe that bankruptcy may be inevitable, that’s a bad idea. Retirement accounts are exempt from bankruptcy, so you’re losing all that money for no good reason.
- Don’t give your property away. Maybe you genuinely want your brother to have that vintage Mustang you’ve been keeping in the garage — or maybe you’re hoping that it won’t get seized and sold for your debts during the bankruptcy. Either way, transferring your assets to a friend or relative shortly before you file bankruptcy is a bad idea (and potentially illegal).
- Don’t run up your credit cards. A necessary purchase or two can be forgiven, but buying anything costly or just plain shopping with your credit cards right before you file for bankruptcy can cause creditors to challenge your discharge. They may win, too.
- Don’t pay back personal loans. You may hate the idea of not paying your uncle or best friend back their generous loan, but that’s an unsecured debt. You cannot selectively pay your creditors, even if you have personal attachments to them.
Filing for bankruptcy can be a huge step forward in your life, but you need experienced legal advice from the very start.