As a consumer bankruptcy attorney who has spent the better part of the last 15 years counseling individuals contemplating bankruptcy, I can tell you that one of the things I see on a daily basis is the lack of financial planning from individuals. I don't want to sound mean or as if I am putting anyone down, but I would be remiss not to share this idea. I know that most us need to borrow for a car or a home, and that is fine. I just want people to be aware of what assets are protected if something goes wrong. I want people to have a financial plan.
A financial plan is essential if your are going to retire someday. Your plan may be as simple as saving 5% of your salary or it may be much more complex. But, you need to start somewhere. Why am I writing this blog after the great recession? Because there is no better time to start planning than now. Or, if you already have a plan, now is a good time to revamp your financial plan for the future.I firmly believe that bankruptcy is not financial failure. If I said it once, I've said it a thousand times - Bankruptcy is very simply financial planning for the future. Businesses do it all the time, why not individuals? I see many people in my office who are experiencing some form of financial problem. They are worried about the debts. I don't want them to worry about the debts. My main focus is on protecting the assets that they already have. That is my goal. The debts will get sorted out. Protecting assets is where I want people focusing.
If the law states that your individual 401k and/or IRA is 100% exempt, then why not place the bulk of your retirement funds into them. Anyone can start an IRA, it doesn't have to be a company plan. If something bad happens, ok, we deal with it knowing that the retirement funds cannot be touched. I'm feeling better already.
What about the equity in your home? For Florida residents, the equity in your homestead is 100% exempt from creditors claims. So, why are more people not paying down their homes? I don't know. Once it is paid for, no creditor can take it away from you (unless you don't pay the taxes). Again, this should be part of your plan.
I get a chill up my spine when I see that a person took an equity line or borrowed from the 401K or IRA to "pay the bills". I met with a gentleman who liquidated his 401K to the tune of $250,000 over the last couple of years to save a home that wasn't worth saving. Was what he did wrong? No, I'm not saying that at all. This is not a right or wrong issue. As a matter of fact, I agreed with his analysis of his financial situation. But, it was what he said when I told him that the 401K would have been totally protected. He said: "Had I known that, I may have done some things differently."
You may be asking yourself: "Should I not pay my debts and protect my 401K and/or IRA?" Yes, that is exactly what I am saying. Why, because if you know these assets are protected and your plan is to protect these assets at all costs, the decision to file for bankruptcy protection may be simpler and quicker.
All I'm saying is that if something goes wrong, isn't it better to know your options ahead of time. That's financial planning.
by Carmen Dellutri, Southwest Florida Bankruptcy Attorney · Posted in *Bankruptcy Basics