For most people, bankruptcy is a last resort option when the financial situation worsens. However, with the Coronavirus causing widespread job losses, it may be the only option you have to save your home and car from being foreclosed or repossessed. These times are never certain, and the future holds no definite answers about when or if a job may be lost.
Should you contact your creditors?
If you recently lost your job and finding new employment has proved to be difficult, it might help you to contact some creditors.
- Your Mortgage: Call them first. Let them know your situation, especially if your job loss is connected to the Coronavirus. Mortgage companies are offering deferrals or forbearances for homeowners who have been impacted by the Coronavirus. You may be able to delay payments for a few months to help you stay afloat. Make sure that you understand the terms of any agreement you make with the mortgage company. Many of these agreements call for a balloon payment for all the missed monthly payments as soon as you start making payments again.
- Student Loans: Student loans have been ordered on deferment for a short time. If you find you still are unable to make your student loan payment once the mandatory deferment ends, call your student loan servicer and ask for an additional deferment or forbearance. Your servicer should be able to help you out.
- Utilities: Many states have ordered that utility companies defer from shutting off utilities while the pandemic is going. If you find that you cannot pay, call your utility company, and ask for a deferment or a payment plan with temporarily reduced payments.
- Credit Cards and other Unsecured Debts: These should be the last payments you worry about. Keeping a roof overhead and food on the table is most important. You can call your creditors and ask for a temporary waiver of payments or other options the creditor might have during these times. If you cannot pay your creditors, consider filing bankruptcy before you get too close to a repossession or foreclosure.
What if Bankruptcy is My Only Option:
If you have done everything you can to stave off from filing bankruptcy, but you now realize bankruptcy is your only option, contact a bankruptcy lawyer for help. Bankruptcy lawyers know how to plan for bankruptcy and can advise you on how to structure your financials to best qualify for chapter 7 bankruptcy. If you are behind on mortgage or car payments, a bankruptcy lawyer can tell you how much a Chapter 13 plan payment would be to keep your home and car. Chapter 13 would mean that you have some employment income where you could at least afford to pay for the home and car. If you have no income at all, chapter 7 might be the best option for you.
Qualifying for Bankruptcy:
Qualifying for Chapter 7 means passing the Means Test. The Means Test is a calculation of your gross monthly income that is used against the median income in your area. If your income is less than the means (average) income, then you qualify for chapter 7. If it is higher, then an advanced calculation is used to count certain debts and deductions to see if you can qualify after subtracting these deductions. If you are a business owner and the majority of your debts are business debt, then you might be exempt from the Means Test. Assuming you qualify under the Means, then you can file chapter 7 bankruptcy. A bankruptcy lawyer can help you determine if chapter 7 is best for you depending on your circumstances.
To make these calculations, take the last six months of your income from all sources, multiply it by 2 and then divide by 12 months. You would then know your monthly average income. If that income is higher than the average for the Means Test, then you need to go to the next step. A bankruptcy lawyer can help you with this.
Qualifying for Chapter 13 means that your income was too high or over the Means average to qualify for chapter 7. If you were recently laid off, it may make sense to wait a month or two before you file to see if your average monthly income is reduced due to no employment or little income from unemployment insurance. Chapter 13 calls for a repayment plan. If you are behind on mortgage or car payments, chapter 13 maybe your best option for keeping your property.
How Can I Keep Myself Out of Bankruptcy?
Many people will do anything they can before filing for bankruptcy. There may be several options:
- Try to borrow money from friends or family to help make ends meet. If you do this, make sure that you do not pay friends or family back any money if you think there is even the slightest possibility you might end up in bankruptcy.
- Take money from a retirement account or 401k. You can do this, but only if it is a loan and you can repay it back once you start working again. If you have been furloughed and you know you will be able to go back to work at some point, this might be an option. If you lost your job, be very careful with this option. Taking money from a retirement account or 401k may be very costly in taxes and penalties. Consult with a lawyer or tax advisor before taking this step. Also, most retirement accounts are protected in bankruptcy. If you decide bankruptcy is the better option, consider filing bankruptcy before taking this money.
- Sell your property for income. Many people will sell their household goods, furnishings, jewelry, guns, or other property to generate income prior to filing bankruptcy. Many states have exemptions to protect your property in bankruptcy. If you think you might still end up in bankruptcy, sell any unprotected items prior to filing. It is better that you get something out of these items rather than giving them up to a bankruptcy trustee. Consult a lawyer to find out what property is protected in your state.
- Liquidate other financial assets. If you happen to have a stock account, shares in a corporation, mutual funds, or other assets, it may help to sell these off for income. You can always rebuild these assets again later when the economy rises. Also, these assets are not protected in bankruptcy. Again, it is better for you to get what you can from these assets rather than giving them to a bankruptcy trustee. Call a bankruptcy lawyer for advice on the best way to liquidate these assets.
Struggling with finances is never a good time. You have options. Make sure you are planning your financial future correctly. If bankruptcy is your best option, contact a bankruptcy lawyer for help.