Do not withdraw money from IRA to pay debts!

As the holidays and new year approaches,many people want to start the year with little or no debt. They will look at their IRA or 401K statements and most likely see that their accounts have increased due to the modest rise in the stock market. For Example lets say that Dan has $60,000 in credit card debt. He has $50,000 in his IRA. He is able to get his creditors to accept the total amount of $25,000 to settle with his creditors. Dan would also qualify  to file a Chapter 7 Bankruptcy. He thinks he will still have $25,000 left  in his  IRA after settlement with his creditors.

DAN IS WRONG!

$50,000 -IRA

- $25,000

-$5,000.00 -penalty for early withdrawal

-$7,000-debt forgiveness taxable to DAN

___________________________________

$13,000-What is left in Dan’s IRA  account

DAN is debt free,however he will still have bad credit, only $13,000 in savings with no other assets as his house is worth $80,000 less than the payoff on his mortgage. Clearly,DAN would be better off paying $1,500-$2000.00 to file Bankruptcy and still have $50,000 in his IRA. Also,after one year his credit score will improve.

So as the holidays approach, remember cash is king and do not raid your retirement  account  to pay debt. Once you take the money out of your IRA,it is Gone!

“Bait and Switch”

A homeowner has been served with a foreclosure by their lender and that person’s house can be sold at auction four months later if the proper action is not taken. He does not worry because he has filed the necessary documents with the lender’s modification department to lower the mortgage payment. He places the court documents in  a drawer and forgets about them.

Two months later,the  homeowner wonders why he has not been contacted by his lender about the modification. He  telephones them about the modification and is assured that his property will not be sold while the modification is under review. Three weeks later,he receives court documents that his primary residence is going to auction within 30 days.

The following day,he calls the lender’s modification department about the status and after being placed on hold for 15 minutes informed he would not qualify for the modification. In a panic,he  looks for the foreclosure docs and a business card of an attorney, he received a year ago. This has happened to some of my clients and the lesson to remember is that if you get court papers, call an attorney for a consultation. THE LENDER IN A FORECLOSURE SITUATION IS NOT YOUR FRIEND!!  The foreclosure part of the lender has nothing at all to do with the modification department.

FORECLOSURE MISTAKES

                                     You have just been served with a foreclosure by your mortgage company and after looking at the complaint and exhibits which can total over 60 pages, you decide to “wave the white flag”  and make plans for an imminent departure from your residence. Think the opposite, the documents  you have been served with, are most likely full of errors ,  and thus the bank may soon be on the defensive.

In many cases,mortgages and notes are sold more than once and the documents that are transferred  are lost or misplaced. Then,when the lender contacts its attorney to commence the foreclosure, another opportunity exists for documents to “disappear. Sometimes endorsements and signatures on the documents themselves are incorrect.Do not let your lender intimidate you!  You have the right to vigorously defend your foreclosure.

 Our office is able to assist you and provide a free consultation as to your rights..

Debt collectors

The  potential client will call me and state that thay are sick and tired of credit card companies calling them  day and night. I tell that person to calm down and explain the various options to relieve the pressure inflicted by debt collectors. If you send a certified letter to the collector and instruct them not to contact you at work ,they have to cease communication with you at work.

If you do not work,you can screen your calls and or disconnect your phone number. It is important that if you speak to the creditor that you require them to mail you a copy of the credit card statement or invoice. The creditors can still contact you thru the mail and after five or six months could file a lawsuit in court.

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