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Do not use exempt property of pay off bad debt

There is no limit to what people will do to manage credit card debt. While the instinct is respectable, often times the tactics are less then beneficial. Sometimes individuals facing serious financial challenges from credit card debt try to prolong the inevitable by borrowing money from one card to pay another. In other cases, individuals liquidate important assets like their retirement accounts.

To understand why it is such a bad idea for an individual to dip into their retirement savings to pay off credit card bills, it is important that Tennessee readers understand what a bankruptcy exemption is. A bankruptcy exemption is property or assets that are exempt from liquidation during the bankruptcy process under state or federal bankruptcy law.

There are a number of personal assets that are exempt from the bankruptcy process as either a federal and state exemption, while others depend on whether the person filing for bankruptcy chooses to file for a Chapter 13 or Chapter 7 bankruptcy. Common exemptions include clothing and other personal items, the homestead exemption and a qualified retirement account exemptions.

A qualified retirement account includes a pension, IRA or 401(k). Because these accounts are exempt, it is foolish to use them to pay off debt, particularly credit card debt. Credit card debt is unsecured debt, meaning there is no specific asset to which it is tied, like a car loan or mortgage. Furthermore, people who use these assets to pay credit card bills sometimes end up filing for bankruptcy eventually anyway, only this time without their retirement savings.

Rather than exhausting what few assets remain, individuals struggling with credit card debt should speak with an experienced debt professional. Not only can a debt relief professional assist with identifying all available debt relief options, but he or she will be also able to explain just how filing for bankruptcy will affect your estate once the pertinent bankruptcy exemptions are applied.

Source: Esquire, "What To Do If You're Broke," June/July 2013

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Mark T. Young & Associates
2895 Northpoint Blvd.
Hixson, TN 37343

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