COMMON MISTAKES MADE BY PERSONS IN FINANCIAL DIFFICULTY OR FACING BANKRUPTCY

1. Not Seeking a Lawyer’s Advice Soon Enough. This is a case of what you do not know will hurt you. Options that might preserve your assets for your future use after a bankruptcy might be lost if the right steps are not taken soon enough. If you are having financial problems, get in to see an attorney as early as possible.

2. Transferring Assets to Relatives or Friends. Transferring assets to relatives or friends without adequate consideration is usually deemed fraudulent by the Bankruptcy Court. The transfer is usually reversed and so is ineffective. Worst of all, the transfer may become a basis by which the Court will deny a future bankruptcy discharge of debts altogether. This is the worst of all possible worlds. You lose the asset and you are not eligible for bankruptcy relief. If you have made transfers of money or property, it may be possible to take steps to put you in a position where you could still get a discharge, but you should see an attorney immediately.

3. Playing Credit Card Roulette. This is the process where a person takes cash advances or balance transfers on one credit card to pay the amounts owed on other credit cards. Not only is this a sign of desperation, the amounts that you obtain as cash advances might not be dischargeable in a future bankruptcy. If you are in this situation, you should stop since you are probably making your situation worse instead of better.

4. Taking Money out of Retirement Accounts to Pay Bills. Most retirement accounts are exempt from seizure in a bankruptcy or by creditors. Generally most debts that people pay when they take money from their retirement accounts would be discharged in a bankruptcy and would not have to be paid. Usually the best course is to save your retirement account for its intended purpose -- retirement. Do not take money out of your retirement account to pay bills without having a lawyer help you analyze your overall financial posture.

5. Paying Back Loans to Friends or Relatives. While you may think that repaying your friends or relatives is morally the right thing to do a Bankruptcy Trustee may be able to reverse the transfer and take the money back from the intended recipient because the payment will be considered a preferential transfer if made within certain time periods prior to the bankruptcy. Making payments to creditors in advance of bankruptcy requires careful planning after receiving advice from a bankruptcy lawyer. If you have funds available to pay some but not all your creditors, you should not spend your money without first seeking advice from a competent bankruptcy lawyer.

6. Refinancing Your House or Taking a Second Mortgage on Your House to Pay Bills. A significant amount of the equity in your house is exempt from creditors in a bankruptcy. By taking the equity out of your house to pay bills, you are converting an exempt asset (your equity - which you may get to keep) and using it to pay bills which you could probably discharge in the bankruptcy without payment. Often, we see clients drain all of the equity in their homes and still end up filing bankruptcy. Instead of getting a fresh start with a home having significant equity when they ultimately have to file bankruptcy, the client ends up with a home with no equity which the client may lose after the bankruptcy because the client cannot afford the higher monthly payments. You should not refinance your house or take a second mortgage to pay bills without having a lawyer first help you analyze your entire financial situation.

7. Not Paying Employee Withholding Taxes. If you are in business, do not make the mistake of failing to remit your employee withholding taxes to the IRS and the Oregon Department of Revenue. Employee withholding taxes are not dischargeable in any type of bankruptcy. Lack of money to pay employee withholding taxes is usually a symptom of a greater economic problem in a business. If you are struggling to pay your employee withholding taxes when due, you need to consult with counsel as soon as possible to determine your best course of action. It may be better planning will solve your problem or that the business should be closed before the business destroys your personal financial security as well.

8. Loaning Money to Your Business Without Properly Documenting the Loan and Without Taking a Security Interest for Repayment Of the Loan. It is always a difficult decision whether to loan personal funds to your own business. However, if the decision is made to make the loan, it is virtually always prudent to properly document the loan, including taking a security interest to secure repayment of the loan. Private individuals should never loan money to their own corporation or business without the assistance of an attorney to make sure the documentation is proper and will put you in the best position for repayment of your loan if the business later becomes insolvent. If the documentation is inadequate, a Bankruptcy Trustee may not have to pay the loan and might be able to take the intended collateral without payment.

9. Failing to Live Within Your Means. Circumstances in life change quickly. Jobs may be lost. Income may decline significantly. If you have a change in your job status or the income that you receive, you may believe that things will return to normal quickly. Often that is not the case. You need to be prepared to adjust your expenses to conform to your income levels if there is a change. If you continue to spend at the same level as your prior income, you may dig a hole so deep that you cannot get out.