Bankruptcy Attorney Provides Some "Do's" and "Do Nots" of Bankruptcy

Not all that long ago, a prospective client told me the kind of story that makes every bankruptcy attorney wince. Over the last several years she had borrowed a substantial amount of money with a home equity loan and used those funds to keep up on her credit card payments and other monthly bills.

I advised her that it is very rarely a good idea to incur secured debt, like a mortgage, in order to make payments on unsecured debts such as credit cards. Unsecured debts are generally dischargeable in bankruptcy whereas liens on property are not. In bankruptcy attorney lingo, liens are said to "ride through" bankruptcy. Aside from home mortgages, one of the most common other mistakes people considering bankruptcy make is borrowing from 401K plans to make payments on unsecured debts. The reason is the same. Like secured debts, the tax liability these people incur is generally not dischargeable in bankruptcy.

At the risk of sounding like a broken record, I will say again that more people should discuss their situation with a bankruptcy attorney as soon as the prospect of serious financial difficulty becomes apparent. One of the most common indicators is borrowing from one lender in order to pay another. Most bankruptcy attorneys do not charge for an initial consultation and a lot can be learned from them in a short period of time. Also, the earlier you talk to one, generally the more that can be done to ensure you discharge as much of your debts as possible while keeping as much of your property as you can.

You never know, a simple piece of advice from a bankruptcy attorney like don't take draws on your home equity line in order to pay credit cards could wind up saving you many thousands of dollars.