QUESTION: I was working as an assistant to a dentist in Beverly Hills. However, I was laid off because business was slow. At first, I was not worried because I have some savings and about 40,000 in my 401K account. However, I had a hard time finding a new job even after 5 months of aggressively sending out my resume.
My personal financial condition started to spiral. I went back to my mother’s house because I cannot afford to live by myself. Since I was just relying on my unemployment checks, I stopped paying all my credit card bills. I have a total of $60,000 in credit card debts from 5 credit card companies. Representatives from credit card companies are now calling me every day!
All my credit cards are now cut off and they are threatening to sue me. I have about 40,000 in my 401K account. Should I pull that money out and settle with the credit card companies? However, if I pull out the money, I will have no money and no income apart from my unemployment checks. I only have an old 2006 Toyota Corolla that is fully paid off. Will they take that away from me too?
Answer: You have two options, you can settle your credit cards 20 cents to a dollar or you can file for bankruptcy. However, it may be more prudent not to dip into your 401K account and to simply file for bankruptcy. Your 401K account, assuming it had been established about a year before you filed for bankruptcy will be protected from garnishment if you file for bankruptcy.
Further, you can get a reprieve from all these harassing phone calls if you file for personal bankruptcy. If you do nothing, then these companies can sue you in court. If you do nothing, they can get a default judgment and levy your car. Worse, if you get another employment, they can garnish a portion of your wages. Filing for bankruptcy can help you. You can file a voluntary bankruptcy petition under Chapter 7. This will discharge all your unsecured debts, i.e., credit card debts. Your car can be exempt from bankruptcy, no creditor will be able to get your car.
Bankruptcy carries a stigma. However, in truth filing for bankruptcy affords debtors (the person who filed for bankruptcy) solutions to their financial problems. Bankruptcy laws also give debtors a reprieve from certain creditor actions, including eviction, foreclosures, garnishment, bank levy and repossessions. This means that the lender cannot go forward with these actions unless they ask the bankruptcy court’s permission. Therefore, filing a voluntary bankruptcy petition allows debtors to lay behind financial problems and move forward with their lives. In your case, it will stop harassing phone calls and discharge all your credit card debts.
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This article does not constitute any legal guarantee or advice for any individual matter and does not create attorney client relationship with the readership.
( Published September 25, 2010 in Asian Journal Los Angeles p. C3 )
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