Filing for bankruptcy is on the minds of many people right now. For some, it’s clear that the only solution available to free them from financial hardship is bankruptcy. For others, it might not be a consideration, but should it be?
If you have recently lost your job or the current economic conditions are making it difficult or impossible to pay your debt, it might be advantageous to file for bankruptcy.
In either case, whether you know that bankruptcy is your only option or it is just entering your thinking, it is time to planning strategically. You might need to forget about conventional advice on money management and begin thinking differently.
It should be no surprise that we are having this discussion as a result of the coronavirus pandemic. The virus and COVID-19 have caused staggering numbers of people to lose their jobs, businesses to shutter operations, and economies around the world to topple.
Some suggest that it could be a year before we see signs of recovery. Maybe longer by some estimations.
So what does this mean for you or your business? If you or your business are struggling to stay afloat, is a bankruptcy on your list of options?
If bankruptcy is in your plan, and it probably should be, here are the things you should be doing right now.
Talk to a bankruptcy lawyer as soon as possible
If you currently cannot pay your debts or you believe that you will soon face insurmountable financial hardship, now is the time to seek out a bankruptcy attorney. A reputable and ethical bankruptcy attorney will offer a free consultation. You will need to understand the types of bankruptcy available to you, the attorney can help with that.
The move that most people make when money gets tight is to get the advice of a financial planning expert. But if bankruptcy is a real possibility, your best move is to speak with a bankruptcy lawyer as soon as possible.
The people who do best after bankruptcy are typically those who worked with a legal expert well in advance of filing.
The strategies you need to employ before filing for bankruptcy are unique to your situation. With the help of a bankruptcy attorney, you’ll be more prepared for what will happen before, during, and after the bankruptcy.
Need to speak to a bankruptcy lawyer? Start here.
Clearly evaluate your situation and don’t rush to file bankruptcy
One of the biggest benefits to working with a bankruptcy lawyer well before filing is the knowledge about the process that professional counsel can share.
Because there are time restrictions on how often you can file for bankruptcy, you’ll want to make sure you are in a position to get rid of the maximum amount of debt.
Also, it is essential to consider what might happen if your financial position changes between now and filing for bankruptcy. If your situation improves, should you back out of filing? If it worsens, should you file more quickly?
Working with an experienced attorney will help clarify the answers to those questions and give you peace of mind as you move forward.
If you have a large amount of cash, it’s time to protect it from creditors
Many people do not realize that if you have stockpiled cash in a checking or savings account, that money can be seized to pay your financial obligations to creditors.
Protecting the money you have is critical.
A bankruptcy attorney might advise that you move that money into something like an individual retirement account. In broad terms, if you were to put the money into a Roth IRA, you could still get access to the money if needed and it would be protected from creditors.
Resist the temptation to sell things to pay your debt
If there is even a chance that you are going to be declaring bankruptcy, selling unused or underused possessions to pay credit card or other debt should be taken off your to-do list.
Why? When you complete a bankruptcy, you will have erased your debt. Paying that debt before filing might feel like you are doing the right thing. But the money you could get from selling things might be better used after the bankruptcy.
Leave your retirement plan alone
It might be tempting to consider taking money out of your retirement accounts to pay debts, student loans, or other secured and unsecured debts. But this is generally something you want to avoid.
Even before coronavirus, bankruptcy lawyers would advise leaving your retirement funds intact because they are generally protected from creditors.
Also, there are new retirement fund coronavirus hardships withdrawals which let people acquire up to $100,000 from their 401(k)s or IRAs without penalty. And while these withdrawals are taxable, if they are paid back within three years there are provisions to reverse that tax.
The problem is, if you are facing bankruptcy, it’s likely that you will not be able to pay back the withdrawal. So, using that money to pay down debt could create further financial hardship in the future. It’s a good idea to avoid that.
Tirelessly explore your forbearance options
If your financial future is cloudy and you are unsure if you will quickly get a job or be re-hired by your employer, exploring forbearance options is important.
In forbearance, a lender will allow you to skip some payments on your loan. Skip does not mean that those payments are erased, but instead means that those payments will need to be made in the future.
If you are a consumer filing Chapter 7 bankruptcy, your unsecured debt like credit card debt will be eliminated. Secured debt like your car loan or mortgage generally will not be erased. Forbearance on secured loans like these can offer a bit of financial breathing room and allow you to use the money you have to pay for the absolute necessities like food and utilities. You might also need the money to pay your bankruptcy lawyer’s fees and filing fees.
A bankruptcy lawyer can explaing your forbearance options? Start here.
Do this right now
It should be clear that if bankruptcy is even a remote possibility for you, there are many steps you need to take. Being strategic and moving away from the advice you might get in credit counseling will often make things better for you during your bankruptcy proceedings.
Debt relief is on the minds of just about everyone right now. If this is you, talking with a bankruptcy lawyer is something you should do right now.