This is the second installment of bankruptcy exemption planning and more things to do or not to do before filing bankruptcy. I will also focus on how your bank accounts can be affected by bankruptcy.

Your retirement accounts are usually exempt from all creditors.

So before you start taking money out of those accounts in an attempt to pull yourself out of debt, you should consult with me.

I have seen people drain their retirement accounts, and incur tax liability, in an attempt to get out of debt. Usually these people end up in my office anyway, just later rather than sooner.

If they had come to me sooner, they probably could file bankruptcy now, get rid of most, if not all, of their debt, and keep retirement accounts for exactly that… retirement!

Doesn’t that sound like a much better outcome? Better for your future financial health?

Don’t keep too much money in your bank accounts.

There are multiple reasons for this “rule”.

First, you would be surprised at how many people don’t know or don’t care that a creditor may have a judgment against them. But if that creditor has a judgment, they are likely working towards a garnishment. Once they get the garnishment, they will take money out of your bank account (or your paycheck before it even hits your bank account). Plain and simple… poof, it’s gone.

Second, sometimes you have given a bank permission to take money out of your account. So when you stop paying a bill,or can’t pay it, they may be able to reach into your account and take the amount due. You might need that money to buy groceries, pay rent/mortgage, or make the car payment.

Which leads me to an important point…. I think it is a bad idea to allow any creditor access to your bank account. Certain automatic drafts are OK, and you should ask me about how this applies in chapter 13 bankruptcy. But there is no reason a bill collector or credit card company needs authorization to reach into your bank account.

Which leads me to an even more important point…. I don’t think anyone should ever bank and owe money to the same place.

If you have a bank account at Bank of America, I hope you don’t have a Bank of America credit card. Owe Wells Fargo for your mortgage payment? Don’t keep your savings or checking account there as well.

Am I being overly cautious? Maybe. But can you afford not to be cautious if you are having trouble paying the bills each month? One creditor takes a payment, garnishes, etc, and you aren’t expecting it? It could send you into a further tailspin.

Call 407-749-0080 now for a free consultation to see how I may be able to help you with exemption planning and how your bank accounts should be set up before filing bankruptcy.