Many people assume that bankruptcy is an option only to be considered after reaching the end of your rope. At that point, however, it might be even more difficult to recover from your financial struggles than it would have been if you had explored debt relief options sooner. If you have savings, perhaps you have wondered whether you should exhaust them before filing for bankruptcy. The following four considerations will illuminate why this is generally a bad idea.
You may not know when your income will be restored
Bankruptcy can be the result of a range of circumstances, but one of the most common causes is an unexpected loss of income. If you have been fired or laid off and are unsure of when you will have a source of income again, burning through your savings can be dangerous, even if it is in an effort to keep paying bills. It is better to plan for the worst and explore what other options you might have.
You need to maintain funds for living
Going through your savings can present other problems, too. If all of it goes to paying bills and debt, you may soon find yourself without the money you need to buy groceries, fill up on gas and take care of other everyday necessities. This is especially true if you are in the aforementioned situation of being uncertain when or whether you will have a steady stream of income again.
Cashing out savings could raise a red flag
Some people withdraw their savings prior to filing for bankruptcy to pay bills or maintain cash for personal use. Doing so can raise some red flags as this is something commonly done by people who intend to commit bankruptcy fraud. According to the FBI, in fact, one Florida man was arrested for withdrawing and concealing hundreds of thousands of dollars. It is best to leave money in your accounts so you do not raise suspicions when you do file for bankruptcy.
Savings will help you recover financially
One of the most pervasive myths surrounding bankruptcy is the idea that it will devastate your credit and finances. On the contrary, it can be an effective way to find relief from debt and begin recovering from financial struggles. Maintaining your savings will facilitate financial stability and recovery as well.
You should be sure to find a trusted advisor when you are considering bankruptcy. Contacting a reputable attorney may be a wise step.