If bankruptcy may be in your future due to the aftermath of COVID 19 here are 5 things you need to know.
- DON’T WAIT TO TALK TO A BANKRUPTCY ATTORNEY
The people that come out of bankruptcy in the best shape tend to be the ones who got expert advice early. You can get referrals from the National Association of Consumer Bankruptcy Attorneys, and the first meeting is typically free. Bankruptcy after COVID 19 does not mean you should rush to file for bankruptcy since your situation could improve, or things could get much worse. You need to understand that a Chapter 7 Bankruptcy can only be filed once every eight years so you will want to file when you can erase the maximum amount of debt.
- STOP: DON’T SELL STUFF
Some people are advised to sell unneeded possessions to pay down what they owe. However if bankruptcy is in your future check with your attorney first since the sale may be unnecessary or may be needed more at a later date. Also, don’t give away your assets, because a bankruptcy trustee — the person administering your bankruptcy case — could sue the recipient to get them back.
- DON’T TOUCH YOUR RETIREMENT MONEY
This advice predates the COVID pandemic. It has never been a good idea to use your retirement funds to cover debt especially if bankruptcy is in your future. The new CARES Act for coronavirus hardship allows withdrawals up to $100,000 from your 401(k) or IRA without penalty or mandatory withholding. The withdrawals are taxable, but people who can pay the money back within three years can amend their tax returns to get those taxes refunded. That’s great in theory but most people in a financial crisis now will not be able to pay the money back. Most important your money in a retirement account is usually can be protected from creditors. So if you use these funds to pay debt such as credit cards and medical bills that could be erased in bankruptcy you are in essence throwing away your retirement funds.
- DON’T PILE UP CASH
A stash of cash can be important but money in bank accounts can be seized by your creditors. Your bankruptcy attorney can advise you about where to put your cash.
- FORBEARANCE OPTIONS?
Because of the COVID 19 crisis, many lenders are allowing borrowers to skip some payments. The usual advice is to take advantage of such forbearance only if you really need to, since the debt will still have to be repaid.
Keep in mind credit card debt and most other unsecured debt would be erased in a Chapter 7 bankruptcy after COVID 19, which is the type most consumers file. Secured debt, such as mortgages and car loans, usually isn’t erased, but forbearance could help you save money for other necessities, including food, utilities — and paying your bankruptcy attorney. (A Chapter 7 filing typically costs about $1,200, with Chapter 13 filings running $3,000 and up.)
Wondering what the next step might be in these unprecedented times? Give us a call at 801-221-9911 and we can set up a consultation over the phone, via Zoom or in person. The Utah Bankruptcy Guy is here to help.