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: Enlist an ally in a seller's real estate market

Wynn at Law, LLC is frequently on the lookout for its clients when it comes to their two largest investments: The retirement nest egg, and the family home. We'll talk about the nest egg, wills, estates, and wealth transfer several times in the coming weeks. However, this week I've noticed how low real estate inventory is in southeast Wisconsin, so let's cover what that means for the legal rights of buyers and sellers.

Low inventory means it is a seller's market and that's excellent news if you have a property to market. Typically bidding favors you:  It's supply and demand. However, deals can still be found for buyers in the market today. The key on either side of the transaction is an effective attorney, and here are five reasons why.

1) Offers need speedy attention during a low-inventory cycle. No buyer should make one, no seller should accept one, without a legal review. Real estate agents all know attorneys for this reason. (Did you know you can choose your own instead?) Without an experienced real estate attorney in a buyer's corner, it gives time for other buyers to enter the bidding.

2) Home sellers are more inclined to go For Sale By Owner (FSBO) when the inventory is light. Their theory is that real estate agents add value when there is a glut of homes on the market. In my opinion, the theory is a little over-simplified, but to each, their own. A buyer's attorney makes sure the transaction represents the buyer's best interests… the FSBO seller's attorney ensures the seller's rights are protected in the face of mortgage lenders and the legal transfer of the deed.

3) A seller's market often triggers buyers to take on properties as-is or with minimal improvement in order to beat other buyers to the table. Wynn at Law, LLC sees several lake properties a year that fall into this category in buyer's markets, too. A buyer's attorney makes sure the client doesn't get in over his or her legal head.

4) Time is a recurring theme here. The attorneys coordinate the closing to encompass every detail in one sitting. A missing deed or inspection will impact the mortgage which will impact the deal.

Know how many initials and signatures are involved in the transaction? Dozens. All are binding. It seems monotonous. It can also seem threatening. Attorneys add value by taking emotion out of a big investment and scrutinizing every detail, which saves time, money… or both in a seller's market.

 

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

 Photo by Alex Raths, 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.