Bankruptcy can help both sides of your balance sheet. Getting a fresh start means not just being relieved of debt, but also protecting essential assets. You can preserve this benefit by not selling, using up, or borrowing against your protected assets BEFORE your case is filed. In order to regain your financial footing, you will need housing, basic household goods, clothes and – where appropriate – tools of the trade, unemployment or disability benefits and retirement savings. Bankruptcy usually protects these things. Specifically, Chapter 7 protects all “exempt” assets. And if the applicable exemptions do not protect all of your property, Chapter 13 usually provides protection. But bankruptcy cannot protect what you’ve sold, given away or used up. Clients often recount how, within the year or so before deciding to file their case, they depleted their retirement account or sold off household goods in an attempt to avoid bankruptcy. But those things usually would have been protected had they filed their case when they still had the assets. As they say, hindsight is 20/20, but if you are one of those trying to avoid bankruptcy and you are thinking of spending, selling, or borrowing against any of your assets, do you know whether it would be protected in bankruptcy? This type of decision has long-term consequences and is often made without any legal advice about the alternatives. If someone in her 50s cashes in a 401(k) retirement account to pay credit-card companies, that decision can hurt her retirement years. Or if a couple sell a debt-free car that is in good condition, believing that they’ll lose it in a bankruptcy, that decision could adversely impact their ability to get to work. People tend to wait until they are at the end of their rope before getting legal advice, well after they have made these types of adverse decisions. But you can obtain a better fresh start by going for legal advice early enough to preserve your assets.
