Below is the final set of Tacoma bankruptcy traps for the unwary. Please let me know if you have any questions at all about any of the issues raised in these posts, we are happy to help:
10. Not Paying Your Employee Withholding Taxes
If you are a Tacoma business owner, please do not make the mistake of failing to pay your employee withholding taxes to the IRS. The IRS has the power to assess certain individuals responsible for managing a company for any employee withholding taxes that are not paid by the company.
Employee withholding taxes are not dischargeable in Chapter 7 or Chapter 13 bankruptcy. So if you are thinking about filing bankruptcy, the one debt that you want to stay current on is the employee withholding taxes. We can deal with the credit cars, the car loans, the medical bills and whatever else. Don’t pay the credit cards which are normally easily discharged and skip the employee withholding taxes.
11. Emptying Retirement Accounts to Pay Debts Off
Most retirement accounts are completely protected in a bankruptcy. Unfortunately, most debts that people pay off when they empty retirement accounts would have easily been eliminated in bankruptcy. Even worse many would be Tacoma bankruptcy filers incur tax penalties while taking out money from retirement accounts to pay off debts that would have been eliminated anyway.
Save your retirement account for retirement. You want to pay off your creditors but this is not the way to do it. Chapter 13 bankruptcy as an alternative will enable you to keep your retirement account, pay something back, but keep your retirement account intact.
12. Refinancing Your home or Taking a Second Mortgage on Your House to Pay Debts
Refinancing your home or getting a second to pay off debts is generally a pretty poor idea. First of all, over $125,000 in equity is completely exempt in a Tacoma bankruptcy. If you have about this amount in equity or less, you have a good chance of eliminating all the debts without harming your biggest investment or needlessly racking up thousands of dollars of interest.
If you have more than $125,000 in equity, filing chapter 13 is likely a much better option than taking equity out of your house. In Chapter 13, you can always wait three plus years before completing a refi or sale of your property to pay off some of your creditors. During that time no interest accrues on the debt and you likely pay off a much smaller sum than you would if you refinanced or got a second mortgage now.
Sadly, we see clients pull all of the equity out of their homes and still end up filing bankruptcy. You should never take out a second mortgage or refinance your home in order to pay off debts without first having an attorney assist you in assessing your entire financial situation.
Please let me know if you have any questions at all regarding any of the issues raised in this post. We have bankruptcy law offices in both Tacoma and Seattle and we would be happy to help.