Attorney Shannon Wynn: Don’t cash out your IRA to avoid bankruptcy

Bankruptcy filing – or the prospect of it – usually puts Wynn at Law LLC clients in full-out panic mode. One of the most alarming, last-ditch, hail-Mary ideas coming from this desperation is to cash out a retirement plan to avoid bankruptcy court. In some cases, people can ‘borrow’ against their company retirement plan, usually a 401(k). This is as dangerous as cashing out to cover the financial struggle.

Don’t. Touch. This. Money.

Retirement money is tax-exempt until you touch it. If you touch it too early, you’ll be subject to taxes and penalties. Here’s a primer on a few of those consequences:

·         If you put the money in after paying taxes on it – like in a Roth IRA – you’ll pay tax on the earnings and a 10 percent penalty if the IRA is less than five years old and the owner is younger than age 59 ½.

·         If you put the money in tax free – like in a regular IRA or a 401(k) – the entire distribution is subject to income tax at your current rate, plus the 10 percent IRS penalty if the owner is younger than age 59 ½.

A tax specialist or accountant will give you clearer instruction on your particular situation’s consequences. Wynn at Law LLC is concerned about those immediate consequences, and the long-term ones. It’s your retirement income you’re putting in jeopardy. You’re mortgaging your entire future! If you leverage this nest egg to avoid bankruptcy filing today, you may have just kicked the can down the road, facing potential bankruptcy in your retirement years.

In almost every case, your qualified retirement plan is EXEMPT from your bankruptcy filing anyway. You get to keep the plan, your creditors don’t. But this goes back to a message from an earlier Wynn at Law LLC article on honesty: You have to disclose that your own a retirement account. It’s still going to be your retirement nest egg, they can’t touch it, but you can’t hide it.

 

 

*The content and material in this original post is for informational purposes only and does not constitute legal advice.

 Photo by Barbara Reddoch, used with permission.

Attorney Shannon Wynn: Spot the five early warning signs for bankruptcy

Most of Wynn at Law, LLC's bankruptcy clients face sudden situations that have them considering filing Chapter 7 or Chapter 13 bankruptcy. I'm talking about things like massive medical bills or sudden job loss. Finances can be a difficult balancing act at other times as well, so I put together a quick list of warning signs.

1. Wage garnishments. These are a dead giveaway that something got out of hand at some point and a bankruptcy filing may be in the cards. However, before a wage garnishment can take place, the creditor has to take you to court to get the order. So, here is the real heads up...

2. Summonses. If a creditor wants a piece of you and has been unsuccessful with collections on its own or with the help of a collection agency, they take you to circuit court. The court is in the county in which you reside. Walworth County Circuit Court, for example, is in Elkhorn. The court sends out a summons when a creditor files against you.

3. Missed or late payments. When you lose track of paying bills by the due date, it's probably time to use a calendar. If you're regularly late or paying at or below the minimum payment, that's a warning sign. It's also a money drain. Late fees are a nuisance. When you start paying interest on late fees added to your account balance, the situation can spiral out of control quickly.

4. Maxed out cards. One reason we miss payments or pay below the minimum is because a credit limit can be a tempting way to extend your income. Buying groceries on the credit card is one example. Even if you're a super couponer, paying for Pick 'n Save on the Visa negates any incremental savings from the coupons.

5. No savings. When you’re not following the old adage that you pay yourself first by putting money into savings or investments (like your retirement plan), it’s a signal. It could flag an unhealthy relationship with money that could bring anyone to Wynn at Law, LLC. Not every saver can squirrel away enough to make it through an unexpected loss of income… but it provides cushion.

The pattern in these five warning signs is in reverse order. If you're at warning sign #1 already, call us. If you're at warning sign #5, there's probably still a lot you can do before needing an experienced bankruptcy attorney.

 

*The content and material in this original post is for informational purposes only and does not constitute legal advice.

 Photo by Igor Stevanovic, used with permission.

Attorney Shannon Wynn: Credit counseling makes sense now more than ever

Wynn at Law, LLC sees a wide variety of bankruptcy clients. Young families and retirees. Executives and hourly wage earners. Men and women, with or without spouses. The common thread through our entire family of clients is that – when it comes to bankruptcy – managing finances became a problem. It may have been suddenly. It may be long in the making. Either way, credit counseling is an important required part of the path that most find beneficial.

Pre-bankruptcy credit counseling became a requirement as a result of The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005: Twelve years ago and just three years before a recession brought a steady stream of bankruptcy filings. The significant reform of the bankruptcy system was passed by Congress and signed into law by President Bush and created tighter eligibility requirements. Because of that Act, most people filing for bankruptcy now undergo credit counseling in a government-approved program. Wait, there's more. After the conclusion of bankruptcy proceedings, but before any debt can be discharged, debtors also participate in a government-approved post-bankruptcy financial management education program.

Don't let the label 'government-approved' scare you off: These programs are harmless. You can find out which agencies have been approved for our area just by giving us a call.

Pre-bankruptcy counseling was put into place in 2005 to potentially steer people out of the courts if a repayment plan would work instead of filing. Counseling is required even if it’s obvious a repayment plan won't work. Usually, by the time you've called Wynn at Law, you've already discovered your debts are too high and your income is too low.

The pre- and post-bankruptcy programs don't shame you into submission. On the contrary, another set of eyes takes an impartial look at your situation in the pre-bankruptcy course. You might learn from your missteps. The second of the two required programs gives you solid financial management practices that will keep you from facing unmanageable debt again. That just makes sense: As much as Wynn at Law values your business, it's a good thing when we don't have repeat bankruptcy customers.
 

*The content and material in this original post is for informational purposes only and does not constitute legal advice.

 

 Photo by Alpha Spirit, used with permission.

Attorney Shannon Wynn: Wisconsin bankruptcy filings decline… so what

The news we heard at Wynn at Law, LLC in February reported that Wisconsin bankruptcy filings last year were at their lowest level since 2007, before the recession. What does that mean to you? Absolutely nothing. Economists care about the number because it means more people are working (maybe) and more people are paying what they owe (probably).

It could also mean that more people in debt sought relief immediately after the mortgage crisis rather than waiting and struggling. There's no shame in that. And there's no shame in waiting until now to file if you've struggled trying to get caught up. About the only thing that fewer filings in 2016 means to you and me is that the bankruptcy judge may have a little less of a backlog of cases. Maybe.

On that note, one of the first questions I get is, 'How long will the filing take?' A lot less time than it took to get into debt, for sure. And a lot less time than it takes to continue to paddle upstream against interest rates, penalties, and harassing phone calls. Depending upon the shape your financial records are in, the process is around four to six months. That's the filing process to get a ruling. If you have a Chapter 13 bankruptcy, you're still involved with payment plans approved by the court for the following 36 to 60 months.

Before Wynn at Law, LLC files your Chapter 7 or Chapter 13 bankruptcy, however, most clients are required to go through pre-bankruptcy credit counseling and get a certificate. I'll have more about this in next week's article. Once we have that and file with the court, the Automatic Stay gives you an immediate break. Take a look at my earlier article on Automatic Stay.

There are several other milestones along the process including the creditor meeting I mentioned last week. Following the creditor meeting, there's a 60-day window for the creditors to possibly challenge discharging your debt. So, from filing to the end of that 60-days, the average case in southeast Wisconsin will take four to six months. Or maybe a little less in light of the recent news.

  

*The content and material in this original post is for informational purposes only and does not constitute legal advice.

Photo: Vladek, used with permission.

Attorney Shannon Wynn: Demystify the creditor meeting in two steps

Some of our Wynn at Law, LLC bankruptcy filing clients have such tremendous anxiety over the Section 341 meeting of creditors. They’ll imagine intimidation like in the photo. For some, it’s the hang up that keeps them from filing. For others, it’s the cause of more than a few sleepless nights. I put a lot of value in the statement that 90 percent of what you worry about never comes true. The creditor meeting falls into that category.

This meeting isn’t a hearing. It’s not even in a courtroom. You’re under oath of course. However, there isn’t a judge. Here’s the two-step for taking the terror out of the topic:

First, it’s required. There isn’t a way out of it, so you go through it in order to clear the path for your financial future.

Second, most of your creditors won’t show up at all! They’re all invited by law. In reality, they know you’re represented by competent counsel and it’s usually financially unrealistic for the creditor to spend the time and staff hours to come to your hearing. The ones who do show up may just want to know about recent cash advances or revolving credit charges to find out if you were on a spree you had no intention of paying back. Or the lender on secured property (a car or house) might show to find out if you’re reaffirming the loan or giving back the property. We’ll have already talked this through in our office. No worries.

In a previous post, I mentioned the value of honesty. If you’ve accidentally missed something, Wynn at Law, LLC can amend the filing before the meeting. Your creditors won’t think your hiding something if you aren’t hiding anything. Again, no worries.  If they do show, and they do ask questions, commonly they’ll want to know things we’ve already covered in advance. For example, if you’re getting an income tax refund or if anyone owes you money or holds property that belongs to you or if you’ve recently transferred property. None of this is an ambush because you’ve already covered it with Wynn at Law, LLC.

 

*The content and material in this original post is for informational purposes only and does not constitute legal advice.

Photo: SIPhotography, used with permission.

Attorney Shannon Wynn: Automatic Stay is a bankruptcy lawyer telling creditors to ‘back off’

One bit of peace of mind my bankruptcy clients welcome as much as a fresh financial start is the Automatic Stay.  Immediately upon Wynn at Law’s filing of your bankruptcy, creditors generally cannot continue the collection process. It’s quiet time at dinner time since the persistent calls usually come to a screeching halt. When you file, Attorney Shannon Wynn becomes the contact person for the creditor.

The stay halts all attempts by creditors to collect your debts, including existing wage garnishments, lawsuits, and car repossessions. And of course the calls and letters.

Not all debts are subject to this provision. For example, child support orders and arrears are not stayed and the state can continue to attempt collection. Also, if a creditor believes he or she has sufficient grounds to continue, the creditor may petition the court to lift the Automatic Stay.  Rare, but it happens.

It isn’t to imply they won’t get a share of your assets. Their share is a proportion. To simplify it, let’s say one third of your debt is owed one creditor: Then one third of your assets are owed them. Not more if they keep after you with more letters and calls. Once the automatic stay is in effect, that creditor is likely to receive less than the full amount they are owed if anything at all. Plus, creditors know you can file suit against THEM if they continue to try to collect after a bankruptcy filing. That, too, is rare, but it happens.

When isn’t there an Automatic Stay?  If you’ve had Wynn at Law, LLC or another firm file a bankruptcy for you in the prior year, you may not get the Automatic Stay. With residential leases, a landlord can continue an eviction if they already obtained a judgment. Even after the bankruptcy filing, a landlord could start an eviction if he or she can demonstrate that the home/condo/apartment is being damaged.

*The content and material in this original post is for informational purposes only and does not constitute legal advice.

Photo: Sonar. Used with permission.

Attorney Shannon Wynn: Even in bankruptcy, file your taxes

The U.S. Bankruptcy Code is nothing you have to learn. Wynn at Law, LLC studies it to offer you the best legal guidance for your particular situation. For example, we don’t provide tax advice, but for a bankruptcy filing you’re required to have income tax returns filed for the taxable period the year leading up to the date of your bankruptcy case. It’s a good idea to have four years of preceding income tax returns as well.

It’s early in the year. You don’t have to have them done before meeting with us, but you do have to have them completed before the filing. Without them, you’re up against that Code, and could run into some severe problems when filing bankruptcy under Chapter 13. 

Same goes for a Chapter 7 filing. Wynn at Law, LLC doesn’t need your income tax return for our initial meeting, but we will need them to provide to the court and the case trustee. You may be required to file with the court copies of your tax returns that are past due, if you missed prior years. You may even be on the hook for filing future years’ returns with the court if you are filing a Chapter 13. 

Here are two tips on timing that you should know:

• First, if the IRS has already put a Federal lien on your property for debt you owe them, the lien remains after the bankruptcy filing. You will have to clear the lien before selling the property.
• Second, when you don’t file taxes before filing bankruptcy, that tax obligation won’t be discharged in a Chapter 7 and may not be distributed in Chapter 13. If you’re due a refund, it may be applied toward the debt you owe or you may be able to keep 100 percent, which is a good thing.

A quick note here: These are income taxes that are discharged in Chapter 7 or Chapter 13. If you owe penalties (fraud, early distributions, etc.) or payroll taxes, Chapter 7 doesn’t wipe those out.

*The content and material in this original post is for informational purposes only and does not constitute legal advice. 

photo: Everydayplus. Used with permission.