We have all been thrown into this sudden economic shutdown and an unprecedented number of people have lost their jobs or are struggling to pay their bills. These are strange times and the usual common financial advice may not be the best course of action. Liz Weston, a columnist at NerdWallet and a certified financial planner, advises those who think they may need to file for bankruptcy to “…ignore some common financial advice and start thinking defensively.”
As a result, many are expecting an unprecedented wave of bankruptcies in the near future.
A May 4th article in The Associated Press by LIZ WESTON of NerdWallet presented advice for those who think that bankruptcy may be in their future:
- Do not wait to talk to a bankruptcy attorney.
The usual advice is to try to solve your debt problems on your own or with the help of a credit counselor. But the truth is that people who seek expert advice from a bankruptcy attorney early, tend to come out of bankruptcy in the best shape. If you even think that there’s a possibility that you’re going to be in debt trouble, or you’re not able to pay something, go get a free consultation before you make any kind of financial move. Your bankruptcy attorney can advise you on your options and whether bankruptcy is a good option for you right now.
- Do not touch your retirement money.
The usual advice is that it is never a good idea to raid your retirement funds. It is a particularly bad idea if bankruptcy might be in your future. Currently, COVID-19 hardship withdrawals from 401(k)s or IRAs are allowed without penalty or mandatory withholding for amounts up to $100,000. These withdrawals are taxable, but if the money is paid back within three years these taxes are refundable through an amended tax return. However, people currently in a financial crisis may be unable to pay the money back AND money in retirement accounts is usually protected from creditors in a bankruptcy.
- Do not let cash pile up.
It is generally good advice to keep a cash reserve in the bank as a buffer against unforeseen financial hardship. But be aware that money in bank accounts can be seized to pay creditors. A bankruptcy attorney can advise you on where to put extra cash to protect it from creditors.
- Do not sell stuff.
Selling unneeded possessions to pay down debt is a common recommendation. But it is not necessarily a good idea if bankruptcy’s in your future. Your bankruptcy attorney will determine the best course of action regarding your property. Selling may be unnecessary.Do not pass up forbearance options.
Because of the COVID-19 crisis, many lenders are allowing borrowers to skip payments. The usual advice is to only take advantage of this forbearance if you really need to because you will still have to pay it later. That advice ignores that fact that most unsecured debt would be erased in a Chapter 7 bankruptcy. So, if bankruptcy’s in your future, forbearance works in your favor. Forbearance on secured debt can also work in your favor by allowing you to use your limited resources on other necessities like food and utilities. And, if bankruptcy’s in your future, it frees up cash for your legal expenses.
Bankruptcy is not always the right choice for those in financial difficulties. But talking to a bankruptcy attorney is sometimes the only way to chart out a sound path back to financial security. Chris Bush is a San Diego bankruptcy attorney who can help you understand what your options are and how to best achieve your financial goals. Call him today at (619) 678-1134.