Posted on Tuesday, November 9th, 2010
Most people feel that bankruptcy is the very last option and will only consider it after trying everything and anything else – debt negotiation companies that charge huge fees, high interest payday loans, borrowing from retirement accounts, selling personal property, etc. However, what most people don’t know is that some of these actions could actually reduce some or all of the protections and benefits allowed under bankruptcy law.
For example, bankruptcy law allows for individuals to protect qualified retirement plan accounts. This means that generally, these funds will not be available for the court to take to pay creditors and you can protect them during the bankruptcy process. Additionally, if you take a loan against your 401(k) account, it can potentially impact your ability to file as 401(k) loan repayments generally are not considered an allowable expense to reduce your income on the means test calculation. This could result in your means test calculation showing discretionary monthly income greater than it actually is, preventing you from qualifying to file under Chapter 7.
Please contact my office before you begin selling your assets or raiding your retirement plans to discuss whether filing bankruptcy is a good alternative for you.