The hardest part about bankruptcy is filling out the forms correctly. Listing your assets and assigning reasonable values; claiming the appropriate exemptions; accurately detailing your income and expenses; and navigating the means test are only a few of the complex issues that debtors must resolve in their bankruptcy cases. The good news is that debtors don’t need to justify their bankruptcy filing; if the schedules are accurate and complete, and if the debtor cooperates with the trustee, then the relief will be awarded and the debts will be discharged.

Creditors and other parties in interest have 60 days after the debtor meets with the trustee to object to the bankruptcy discharge. If there are no objections (and this is a strict deadline) the bankruptcy court will promptly enter the debtor’s discharge. There will be no inquiry as to whether the debtor is current or not on their bills.

The more important question is not whether a client qualifies for bankruptcy – because they almost always will – but whether they should file, or instead struggle with paying their bills. This is a harder question and addresses such different factors as debt load, asset liquidity, employment status, existence of liens, and many other elements of a person’s financial life. Of course, with so many qualified bankruptcy lawyers offering free consultations that provide meaningful information, there is no reason to delay contacting a Maryland bankruptcy lawyer to find out all of your legal options. You may save yourself hundreds of thousands of dollars.

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This is free advice that, if taken, may change the course of lives, families and even generations.

Was this just a puff piece? I didn’t think so then and I don’t think so now, especially with the explosive growth in the equities markets since that blog’s publication in July, 2012. The real truth is that if a family has $100,000 in a protected retirement account when the parents are, say, 45 years old, that money can grow tax free until withdrawals become forced at the age of 70. So if the money grows at 4%, the value in 25 years will be $266,583.63. If the money grows at 7% the value will be $542,743.26. (Source? Future Value Calculator).

Let’s get back to the 45 year old parents with $100,000 in an IRA. They may have income interruption, bills to pay, a struggling business. Do they invade the IRA or consider bankruptcy? If they invade the IRA and spend the $100,000, they will incur a 10% penalty (usually withheld upon an early withdrawal) and then the rest of the $100,000 goes immediately into taxable income, probably forcing the client into a higher tax bracket. If the taxes aren’t paid then and there, the unpaid tax liability (and the interest on the taxes) will become nondischargeable, compelling the client into a likely installment plan with the IRS over several years.

When this happens the balance sheet of the family will become very ugly.

Can they recover in 25 years? Perhaps. If not, then the family will  be left not only without the $542,000 they may have had, but also without the extra money the IRS will grab in the years to come after the decision was made to invade the retirement account. This money could have been added to the IRA or 401(k) and further increased the family’s net worth, significantly affecting the course of the lives of the family for a very long time.

For more information, read Extreme Caution: Invading Your IRA or 401(k) to Relieve Money Problems Might Ruin You. 

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