19 Legal & Planning Mistakes to Avoid
	General Rule. You must avoid the 19 common mistakes that people make when they are unable to pay their bills. Most of them are very costly mistakes. Your financial difficulties are now likely legal problems which are best solved by an attorney. Get a plan so that you can avoid costly mistakes and get back on track..

Homeowners in financial difficulty generally should not make the following common mistakes:

1. If you are having financial difficulty, don’t continue without some debt survival planning and foreclosure defense planning as may be needed to get you back on track. Get your advice of how to get back on track from a competent attorney or HUD-approved credit counseling agency. In most cases, your financial issues have turned into legal issues. Get a plan on how to most quickly survive these problems.

2. Don’t change the priority of your payments to creditors because of pressure from individual creditors and bill collectors, such as credit card companies. Generally pay credit card companies last, since they are unsecured debt and should be paid after you pay for food, shelter, utilities, and secured debt (to prevent a repossession.)

3. Don’t allow bill collectors to keep harassing you. Understand that you have the right to stop their communication with you at both home and work. If you retain an attorney for any reason, you should require that the collection calls go to your attorney. Also, no bill collector or lender should contact you anyway if you are represented by an attorney.

4. Don’t allow a creditor to get a wage garnishment against you. Your situation becomes much more difficult for you if your wages are garnished. In most cases, a wage garnishment can be stopped with a bankruptcy filing. Act with a plan to resolve your debts before wage garnishment becomes an issue.

5. Don’t allow a repossession of your home (foreclosure), your vehicle, or other secured property, without understanding your legal defenses and rights. In most cases, lenders want you to be able to keep your property. Attempt a workout first. If you cannot some type of workout, then get an analysis of how bankruptcy can help you. Many bankruptcies are done to save a home.

6. Don’t allow a deficiency judgment be obtained against you if you avoid it. A deficiency judgment may be had whenever surrendered property is sold by the lender for less than what you owe on the property (plus the lender’s attorney fees and costs.)

7. Don’t ignore the effect of income tax on any workout plan which you do. Usually you will have taxable income for the forgiveness of debt, and the lender will issue an IRS 1099-C to you if you do a deed in lieu of foreclosure, a short-sale, a charge-off on your credit cards, or any other debt reduction. Unless you can show the IRS your were insolvent at the time or you reduce the debt in a bankruptcy case. If you do get a 1099-C and later take bankruptcy, you will not be able to discharge the income tax burden in a later bankruptcy. Instead, discharge the debt in bankruptcy first, so you will not risk having to pay income tax on the reduction in debt.

8. Don’t fail to consider or use an Offer in Compromise to greatly reduce and settle your IRS income tax debts. The same for the state of Colorado. You can reduce your tax debt to the amount which you can pay.

9. Don’t transfer property out of your name. If you file for bankruptcy, the trustee may go after the property for 1 to 2 years after you file for bankruptcy. Also, don’t take your name off of existing accounts or property, for the same reason.

10. Don’t cash in retirement accounts to pay bills or otherwise convert exempt assets into nonexempt assets. Retirement accounts, including 401(k) and IRA accounts, are exempt from the reach of creditors. Keep exempt assets, no matter what. Don’t take out loans against 401(k) plans at the last minute to pay bills. The loan repayment may not be accepted later by a bankruptcy trustee as necessary.

11. Don’t get a 2nd mortgage or otherwise impair the equity in your home for the purpose of paying unsecured creditors, such as credit card companies. You will in many cases lose the equity in your home, and eventually you may lose your home. This is another example of the mistake of converting exempt property into nonexempt property.

12. Don’t pay back loans to relatives and friends when you are neglecting other creditors. These transfers can be recovered from your relatives and friends (and other insiders) for a year before you file for bankruptcy. Sometimes for up to 2 years. If you have such a loan that you want to pay back, pay it back after your bankruptcy filing if you want to and can.

13. Don’t wait until there is a court judgment against you or ignore any court actions against you, including foreclosure and suits for nonpayment of debts. The same for IRS tax liens and collection activity. You may be giving up defenses that you have, such as fraud, TILA, deceptive trade practices, or other wrongful conduct on the part of the lender or collector. Also, don’t assume that a bankruptcy filing will always protect you. It may, but there are exceptions, such as incurring income tax on the forgiveness of debt prior to filing bankruptcy..

14. Don’t run up credit card balances or take cash advances if you can avoid it. Some credit card charges can be recovered which are incurred 90 days prior to a bankruptcy filing. Cash advances also have restrictions on whether you can get relief from that debt.

15. Don’t do credit card balance transfers at the last minute. Balance transfers are considered to be cash advances which you may not be able to discharge in bankruptcy.

16. Don’t withhold information from your accountants, lawyers, other advisors, or a court.

a. 17. Don’t’ file bankruptcy just before you are expecting a large income tax refund. Instead, if you can, first get your refund, purchase exempt assets to the extent you reasonably can. Otherwise all of your refund goes to the bankruptcy trustee and creditors.

18. Don’t give bad checks or post-dated checks as payment for any debt. If a post-dated the check later bounces, you may be subject to criminal action for the bounced check. And you cannot discharge a bounced check in bankruptcy.

19. Don’t pay credit repair organizations, tax compromise companies, or foreclosure rescue companies to help you. Many of them promise that they can do things which are actually violations of the law. Such as remove valid and verifiable credit dings from your credit report or assure you that you will be debt-free in 12-24 months. They generally cannot help you with your legal rights. You end up losing money as well as some of your legal rights. And you may unnecessarily lose your home. This is verified by the Colorado attorney general web site, the IRS web site, and the need for the recently-enacted laws in Colorado. Your legal matter is best handled by an attorney because it is a legal matter.

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