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The Biggest Mistake People Make When Filing Bankruptcy

There is a common mistake I see most people make when they decide to file Bankruptcy. They wait too long. This is true for my clients in the Peoria, Pekin, and Galesburg areas. Folks will take out second loans on their homes, they will borrow against 401(k)’s, or worse yet, take a distribution from a 401(k). Taking a 401(k) distribution is not only taxable, it depletes an individual’s retirement account. Don’t do it. Who knows what is going to happen with Social Security retirement benefits in the years to come. Sock away as much as possible in your 401(k), and don’t touch it. Besides these mistakes caused by attempting to fight off debt obligations, there is the added stress and frustration that comes with battling debt problems on a daily basis. People lose sleep over this. It also causes tension in your household relationships.

These are extreme measures that people take, thinking that one of these measures will buy them additional time, or a way out of solving their debt problems. Trouble is, it hardly ever works. Someone may have what many may consider an average, combined credit card debt of $15,000.00 to $20,000.00. At interest rates in the low to mid-20% range, these people are, often times, only able to make the minimum monthly payments on their credit cards. By borrowing against the equity in their homes, or taking from their retirement plan, chances are they may be able to eliminate some of their debt, but not all of it; and any relief they do obtain, is often times only temporary. I’ve seen this same situation too many times in Peoria, Pekin, and Galesburg.

After attempting to solve their debt problems by borrowing more against their home, or 401(k), and then finding that their debt load is still unmanageable, they come to see me. They have exhausted all possible options, and find that they are still unable to free themselves of their debt burden.

The better advice is this: if you’re contemplating borrowing against your home’s equity, or your 401(k), stop and take a minute to think. Ask yourself if borrowing against your assets is really going to be enough to solve your debt problem, and whether you really want to deplete these assets. Remember, if you borrow more against your home, you’re going to have that additional debt to pay back in the months and years to come. Taking from your 401(k) will leave you with less at retirement. It may be far better for you to swallow your pride, and get a fresh start by filing Bankruptcy.
I can help you weigh your options. I can help you consider the pros and cons of filing for Bankruptcy. Before taking the extreme measure of borrowing against your home or 401(k), call to schedule a free, no obligation appointment with me. I’ll be happy to sit down with you at my Peoria, Pekin, or Galesburg office to discuss what is best for you. Don’t wait too long.

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