Bankruptcy attorney offers debt tips

ALBUQUERQUE (KRQE) - The prospect of financial devastation is very real for many New Mexicans.

Local bankruptcy attorneys said they are seeing an increase in the number of people considering bankruptcy.

Most of bankruptcy attorney William Davis’ new clients have lost jobs or they are business owners who have seen their revenue drop.

The struggling economy is creating a domino effect that for many will lead to bankruptcy.

“I've seen so many people who've come to me and say I didn't want to file bankruptcy I was going to do anything I could to keep from filing bankruptcy,” Davis said.

Many of Davis' clients have maxed out credit cards to pay other bills like utilities or to pay minimum payments on other credit cards.

This only adds to the problem. In the past year Davis has seen clients’ credit card debt more than double from $30,000 to $75,000. This type of debt is the number one reason many file bankruptcy in the first place. However, credit cards are only the beginning.

“Maybe they were a little more sophisticated and they say I'm going to go get a second lean on my house,” Davis said.

If bankruptcy is inevitable, Davis warns, that taking out a second mortgage to stave it off is the wrong thing to do. When one files for bankruptcy they must still pay off their initial mortgage to keep their home.

If they think their second mortgage will be dismissed, they can think again. They will still have to pay that as well, even if they borrowed the money to pay other bills that would have been dismissed.

Davis said possibly the biggest and most common mistake people make is getting into their retirement fund.

“They withdraw money from accounts that would be exempt,” Davis said.

Those exempt accounts are IRAs or 401K plans, and the federal government cannot touch them under bankruptcy.

However, once the debtor withdraws the money they will have to pay penalty fees and taxes. All to pay off credit card debt that is dismissed under chapter 7 and in most cases under chapter 13.