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Jeffrey B.Peltz, P.C.
26 Court Street, Ste. 503
Brooklyn, New York 11242
Telephone: (718) 625-0800

Top 8 Mistakes to Avoid

  1. Do not pay a fee to a company that promises to “negotiate” with your creditors or “reduce” your bills. Commercials for such services appear night and day on the television, radio, and the Internet. The claims sound very convincing. However, such companies are a waste of your time and money. In addition, if a debt is reduced, you may end up owing income taxes on the forgiven debt.
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  3. It may not be wise to consolidate your debts. Turning several small debts into one large debt may make it more likely that you will encounter problems. For example, consolidating your debts may not significantly reduce your monthly payments, and you will create a creditor that will be quicker to sue if you fall behind. In addition, if you decide to file for bankruptcy, that creditor may object to the debt being eliminated.
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  5. Do not take cash advances from one credit card to pay for another. Moreover, don’t transfer balances from one credit card to another. Such actions turn old debts into new ones, which may result in creditors objecting to those debts being discharged in the event you file for bankruptcy.
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  7. Do not withdraw or borrow money from your retirement plan to pay your bills, especially your credit cards. The money in your retirement account should remain there to grow—tax free—so it will be there when you need it upon retirement. In addition, if you take money out of your retirement account, you will be required to pay a penalty and taxes on it.
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  9. Taking equity out of your home to pay your unsecured bills, such as credit cards, may or may not be a good idea. If doing so will solve your financial problem and you can afford the resulting payments, it might be beneficial. However, if you won’t be able to afford the resulting monthly payment, you will be setting yourself up to lose your home. In addition, you may be converting a debt that could be wiped out by bankruptcy into a debt that you will be saddled with if you wish to keep your home. It is best to come in for a free consultation before making the decision to take out a home equity loan or refinance your mortgage.
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  11. Beware of a “short sale” or a creditor willing to reduce your debt. In both cases, the reduction in debt is reported to the IRS as a forgiveness of debt, which is treated as income to you; as a result, you will owe more in taxes. Existing law (in effect until 2013) will keep you from paying this tax if the debt is on your primary residence and you meet certain requirements. You may be better off eliminating these debts by filing bankruptcy and avoiding additional taxes.
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  13. Don’t pay anyone to help you modify your mortgage. You can do this on your own.
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  15. Do not under any circumstances sign your home over to someone who promises to help you in return. Many dishonest people are looking to take advantage of a desperate situation either by stealing your home or by causing you to fall deeper into debt. These people are professional criminals and know how to manipulate you. Do not fall for it. If in doubt, check with us or another lawyer whom you know and trust.