Friends Don’t let Friends Advise One Another about Bankruptcy…

When dealing with personal debt, asking for the advice of friends is very likely not your best option in determining what is best for your financial situation. Consider the following story: An older man who had worked as an architect for most of his life developed Parkinson’s. He was no longer able to work and, although he had insurance, the disease ended up causing him to incur over a hundred thousand dollars in medical bills. He tried working with the collectors to no avail. He paid off a large amount by using credit cards, but this didn’t help him either because he then owed hundreds of dollars in credit card bills each month that he could barely afford to pay. The balances were increasing because he couldn’t afford to pay more than the minimum due. He missed some payments and accounts were turned over to collections. The incessant calls by collectors were stressing him out considerably, which only made his health condition worse. With his fixed income, he saw no way out of the financial troubles he was experiencing.

In a fit of despair and frustration, he described what he was going through to his neighbor. She advised him to cash out his retirement account to pay off his medical and credit card debt. He did this, but unfortunately, the retirement account did not cover all of his debt; he still had over forty thousand dollars remaining in credit card and medical bills. Because he had cashed out his retirement, he was hit with a significant tax bill of nearly thirty thousand dollars. He was in a worse position than he had been in before the retirement cash out. At this point, he came in to see me.

There were so many aspects of this story that broke my heart. As this client sat there in front of me, shaking slightly from the Parkinson’s, relying on this neighbor who ended up causing him much more financial harm than good, I had to explain to him that bankruptcy would be much less helpful at this point than it could have been if he hadn’t been given such “helpful” advice by his neighbor. She had the best of intentions, but her advice was based on misguided morality rather than sound financial advice and information.

Had this client come to see me for a free consultation before cashing out his retirement, I could have explained that in bankruptcy, 100% of his retirement accounts were exempt from creditors, meaning he could have filed bankruptcy and the retirement accounts would have remained intact. Because the tax bill was so recent, none of it was dischargeable in bankruptcy, meaning that this debt would remain his after filing. Bankruptcy would have left him with no credit card or medical debt. He would have had a solid retirement account on which to live for many years. He would not have incurred a tax bill because he would not have cashed out his retirement account. Instead, he was left with a significant tax bill and no retirement account. Bankruptcy helped to get rid of the debt he wasn’t able to pay off, but in the end, he was in a much less secure financial place because of his kindly neighbor.

Good bankruptcy attorneys in the region where I practice (Oregon and Washington) do not charge for consultations. The best go through every detail of a person’s financial situation during that consultation in order to advise them of all of their options so that they know how bankruptcy will work for their specific situation. They are then armed with information based on their facts and the law in their jurisdiction so they can then make an informed choice.

Clients often come to me having done internet research and are often more confused and misinformed than if they had done no research at all. How cases are handled varies from one jurisdiction to the next. How exemptions are applied is based on state laws. How trustees administer cases is also variable depending on where you’re located. A bankruptcy consultation clears up the confusion and offers a clear path forward. And it’s free.

If you are facing financial difficulties, getting a free bankruptcy consultation can be one of the best steps you can take. You’re not obligated to file if you don’t feel it’s your best option, and you will have the information to move forward with your financial life.