Any American suffering from a financial emergency — whether it be job loss, expensive medical treatment, a divorce, or other challenges — must decide how to handle the increasing pressure. Many turn to sources of money and credit in order to keep going. And while some willingly turn to legal tools like bankruptcy, that can be a hard call for many others.
If you find yourself hesitant about seeking bankruptcy protection even though this may become inevitable, knowing how to tap the right funds — and avoid the wrong money source — is vital. Use this short guide to learn about the do’s and don’ts of using sources of cash and credit in this difficult time.
Don’t Raid Your Retirement
Retirement savings can be one of the most tempting sources of quick cash if you can’t pay your bills. But this is one of the last sources you should actually raid — for several reasons.
First, you will suffer a big tax bite for early withdrawals from most retirement sources. Second, you damage your financial stability in the future. Finally, retirement accounts are generally exempt from bankruptcy so you won’t be forced to use them to satisfy any debts if you wait.
Do Sell Select Assets
Selling assets can boost troubled finances, particularly if the emergency was a one-time event (such as a health crisis or divorce). But be careful not to sell any assets that you need in order to continue providing for yourself on a daily basis. While you might sell off-road equipment or unwanted pieces of jewelry, don’t make things worse by selling a needed car or equipment you can use to earn a side income.
Don’t Tap Home Equity
Another common place that people look for available credit is within their home equity. Home equity is a good source of credit because it generally carries a low interest rate and long repayment terms.
However, if you may not be able to pay all your bills, don’t turn non-recourse debt — including credit cards or personal loans — into debt that threatens the foreclosure of your home. You can also usually exempt some home equity during bankruptcy, but you will need to have it available in order to do so.
Do Use Credit Cards Wisely
If you may file for bankruptcy eventually, can you use your credit cards now? The answer is generally yes, but you should use them in a smart manner. Most credit card debts can be included in bankruptcy discharge if it was created under normal circumstances as you tried to navigate your financial problems.
But, if you appear to have charged up your credit cards unnecessarily in order to get the debt discharged, the court may not allow you to discharge them. So be judicious in credit card use, and avoid unjustifiable expenses.
Don’t Turn to Short-Term Loans
Short-term loans — including payday loans, car title loans, and pawn loans — solve some problems for a few weeks, but they rarely provide long-term relief. In fact, these may make your situation worse when you can’t pay off high-interest loans when they become due. If you feel that this type of loan is all you can get, look for a more permanent solution.
A debtor who considers tapping the wrong sources of cash or has exhausted the recommended places to find new money should turn their attention to relief through bankruptcy. This legal tool can help you avoid making your situation worse and instead find a real way out.
At Wiesner & Frackowiak, LC, our bankruptcy and debt professionals can help you learn your options and start getting relief right now. Call today to make an appointment.