Submitted by Rachel R on Tue, 01/26/2016 - 9:44am
Five things to avoid before bankruptcy
Image Source: Flickr User Nicolas Vigler
When debt piles up, and creditors start calling, you want to pay up and put an end to the stress. But often what happens is that consumers allocate their cash not to the bills that deserve to be prioritized but to those that have the most aggressive debt collectors working the case. This can lead to major money mistakes that can haunt you for years to come. If you’re so deep in debt that you’re considering bankruptcy, here are five things to avoid doing.
#1 Skimping on living costs to satisfy debts
Your rent/mortgage, utilities, and necessities to feed and care for your family should always come first. But when collectors get aggressive, you may panic and shortchange your other obligations unwisely. A credit card company shouldn’t rank higher than your family’s living expenses, no matter how unkindly their debt collectors may behave. Put your family first.
#2 Don’t touch your retirement
Debt collectors know how to press you into coughing up money you don’t have. They will ask about your savings accounts, they may threaten you with criminal prosecution (which is both impossible and illegal), they may give you “advice” that only benefits them such as taking money out of your 401(k). Your retirement funds should never be drained for debt payments – no matter what.
#3 Prioritize secured debts
Secured debts are those like your home and car – where the debt is tied to an asset. If your home has equity and the payments are reasonable, it may be worth fighting for, but you should be wise about it. You need your car, so making those payments makes sense. If your money is tight, skip out on unsecured debts like credit cards and medical bills and pay the mortgage and car loan instead.
#4 Be careful with your bank
If you have an auto loan, mortgage or credit card through your bank or credit union and you miss payments, they may be able to take money from your account to satisfy the past due amount – this is called a setoff and is in the fine print of most credit agreements from banks. Consider opening a new bank account and moving your direct deposit so your bank can’t take your cash if you miss payments.
#5 Don’t get in more debt over credit cards
Credit cards can spiral out of control quickly, and card issuers have some of the most aggressive debt collectors. You should not borrow money to pay off your cards by taking out an HELOC, borrowing against your 401(k) or taking cash advances from one card to pay off another. Credit card debt is fully dischargeable in Chapter 7 bankruptcy while a second mortgage is not.
Bankruptcy can help
If you are living paycheck to paycheck, your credit cards are maxed out, you can’t afford to save money, and are barely scraping by, you may need a debt intervention. Debt consolidation plans don’t reduce debt – they may buy you more time to pay it off, but will cost much more in the long run. Bankruptcy can eradicate most unsecured debt – credit cards, medical bills, older tax debts, and more – and get you a clean financial slate.
Bankruptcy is a serious step, but much better than wallowing in debt you can’t afford, living with the stress of dodging debt collectors and not being able to fully live your life. To find out more about how bankruptcy could be the answer to your financial problems, contact the Law Offices of John T. Orcutt. Call +1-919-646-2654 for a free North Carolina bankruptcy consultation at one of our convenient locations in Raleigh, Durham, Fayetteville, Wilson, Greensboro, Garner or Wilmington.
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