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Paying off debt with bankruptcy-exempt assets is a bad idea

When individuals are facing tough financial challenges, they will often do whatever they have to just to pay the bills. Unfortunately, while the instinct to act is understandable, acting hastily in the face of debt can actually get people into even worse financial trouble. Tennessee readers facing tough financial challenges and considering filing for bankruptcy may find the following article on bankruptcy exemptions informative.

People fall on hard financial times for any number of reasons. Sometimes these troubles are the result of a bad investment, an unexpected medical condition or even a failed business idea. Unfortunately, when this happens, it is not uncommon for people to drain their retirement accounts or use their home as collateral. While there may be times when such drastic actions are called for, the times are few and very far between.

The reason accessing certain funds or liquidating certain assets is such a bad idea is that all assets are not created equal in the eyes of the bankruptcy court. In fact, many assets are protected from creditors in the bankruptcy process as either federal exemptions or state exemptions. Common exemptions include home equity under the homestead exemption, retirement savings, injury settlements and even cars.

While wanting to pay back creditors is understandable, unless there is no doubt things have finally turned around, using bankruptcy-exempt assets to pay off debt is a bad idea. In the end, not only will bankruptcy still be necessary, but now the few things that could have been saved are gone as well. Rather than risk such an unfortunate end, speak with an experienced debt relief professional before things get out of hand.

Source: Forbes, "How To Bounce Back From Bankruptcy & The Loss Of Your Home," Cameron Keng, Aug. 5, 2013

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