Updated: 2021-02-01 by
Some people plan for a rainy day. Few are prepared for a monsoon...
Despite massive unemployment, and people leaving the job market, consumer bankruptcy filing reached a 34 year low in 2020, because forbearance and unemployment insurance programs postponed normal collection efforts, like wage garnishment and foreclosure.
But just as 2020 was not the year to file consumer bankruptcy, 2021 may be the year that millions of Americans learn that bankruptcy is an important tool for moving forward with a fresh start, free of the massive debts accumulated during the time of pandemic related lockdowns.
Even if you decide NOT to file bankruptcy, a consultation with a bankruptcy attorney, to discuss your options, may be a wise move for many people, especially if you have assets that are protected by exemption laws, like retirement accounts.
Plan Now - File Later
Several financial columnists wrote at the beginning of the pandemic that it would be wise for people to think about bankruptcy now rather than later, even if you're not going to file for a while. It helps to think about it now so you can plan for it.
What others are saying:
Bankruptcy as part of your COVID-19 financial strategy
Here’s what you need to know if you’re considering filing for bankruptcy because of Coronavirus - CNBC - April 16, 2020
Start Thinking Bankruptcy Now, to Maximize Your Options Later - Liz Weston, NerdWallet, May 7, 2020
As financial columnist Liz Weston recently wrote for NerdWallet,
"If you’ve lost your job or struggle to pay your debt, you may need to file for bankruptcy. If that’s the case, you should ignore some common financial advice and start thinking defensively."
She emphasized these four points
- don't spend your retirement money
- don't accumulate cash
- talk to a lawyer now rather than later and
- relieve your stress -- it's good for your health.
There are many ways you can minimize your losses through bankruptcy.
All of these experts make the same basic point: You don't have to be completely broke to go bankrupt.
Think of bankruptcy as a way of preserving what you have so that you can make a fresh start, and not be dragged down for the rest of your life by debt that was incurred through a one time mishap.
You may never have thought about bankruptcy as something you might need....No one wants to file for bankruptcy.
But it if you're one of the millions laid off because the coronavirus recession, you may be facing financial challenges like you've never experienced before.
Bankruptcy might well be part of a sensible financial strategy to get a fresh start when the economy picks up, but it's best to plan for that now, and know what bankruptcy law can and cannot do for you.
Planning for an uncertain future
It's more important than ever, In these uncertain economic times, that you understand what rights you have under bankruptcy law, as you weigh your financial options over the coming months.
Most experts agree, for most people, the timing for bankruptcy is NOT YET, because...
Many people file for bankruptcy to stop creditor harassment or imminent creditor action. However, in this strange year of 2020,
- collection efforts have been held back in many cases. and
- stimulus payments have given people a life raft, and.
- bankruptcy deals only with past debts, not future debts,
- most people are facing the prospect of lots of debts still ahead, but debts incurred today have not ripened yet into court judgments and there is no wage garnishment happening to people who are not earning wages.
Most bankruptcies during the pandemic have been about pre-pandemic, past debts, some of which were incurred in the last recession. People already facing wage garnishment and creditor harassment from those against them.
However, 2021 may be the year that bankruptcy is the right tool for creating a "fresh start" going forward
The problem with the relief programs that have been created thus far, is that many of them don't do more than squeegee your debts forward into some future time, when you'll eventually have to deal with them.
When those debts come due, bankruptcy might be an appropriate method of handling them, while preserving your remaining assets to help you build your fresh start.
Learn about bankruptcy law NOW, to protect what you have, going forward
If bankruptcy could be a possibility in your life in the next six months or a year, now would be a good time to plan for that.
The debts you are incurring today may not ripen into wage garnishment until next year.
Nevertheless, it's crucial to understand today how those debts are treated under bankruptcy law, and which of your assets are protected, so you can take full advantage of the financial protections that bankruptcy law provides in the coming year.
- Don't squander your legally-protected ("exempt") assets -- like retirement accounts -- on paying off debts that you can legally discharge in bankruptcy -- like credit card debt.
The laws are set up this way for a reason. The government does not want you squandering your life savings on a once in a lifetime debt bubble.
That's why bankruptcy laws were created... precisely so you don't have to do that.
There is a strong public policy in favor of not having you be destitute when you are old. So the government says you can protect over a million dollars in retirement savings and still be "insolvent" for purposes of bankruptcy -- because you're not supposed to be touching that money until you retire. And those retirement accounts are off-limits to creditors... unless you agree to give it to them!
So... talk to a bankruptcy lawyer today, as you navigate these treacherous financial waters in the coming year to 18 months, to make sure you preserve the financial rights you have.
Far too many people fail to take of advantage of the many protections that bankruptcy law affords to consumers because of uninformed financial decisions made in the year preceding their bankruptcy.
As bankruptcy veteran Cathy Moran explains, bankruptcy is part of a comprehensive financial survival strategy, not a "last resort."
"Bankruptcy offers a swift and certain remedy for overwhelming debt. The biggest tragedy I see in my law practice is people who struggle far too long with debt remedies that are doomed from the beginning...Bankruptcy is an option to be considered alongside other debt options, from the beginning...While bankruptcy is not to be used lightly, it is not a last resort."
You don't have to be broke literally to go bankrupt. You get to keep a certain amount of assets they called exempt assets. In the case of retirement property those assets can be sizable. That is to say you can declare yourself bankrupt even if you have $1 million in retirement assets. Your creditors can't touch that, even in bankruptcy.
Retirement accounts protected up more than 1 million dollars.
Bankruptcy law protects over $1 million in retirement assets.
That is to say you can be legally "insolvent" even if you have over $1 million in retirement assets.
Your creditors can't touch that money in bankruptcy. The law wants you to save your nest egg. That's why they passed laws to protect it.
Don't wait to talk to a bankruptcy attorney
So don't wait to consult with an attorney only after you have squandered the very assets that could have been saved by declaring bankruptcy. Talk to an attorney now, if you think bankruptcy might be a possibility later. Don't make costly mistakes in the time before you file. Bankruptcy is a powerful tool, but only if you use it wisely.
Learn More About What Bankruptcy Can and Cannot Do
If you're new to bankruptcy, you can start with learning about:
- what kinds of debts bankruptcy can eliminate (not all), and
- what kinds of property you can protect (more than you might think!)
- the two main ways to file bankruptcy:
- Chapter 7 (Liquidation of non-exempt assets to pay debts) and
- Chapter 13 (Commitment of 5 years of 'disposable income' (if any) to repay as much debt as possible, based on county expense standards)
- whether your income is low enough to qualify for Chapter 7
- whether your income is low enough to qualify for a fee waiver
- whether your situation is simple enough to file bankruptcy without the help of an attorney.
You may also be interested in:
Steps for filing bankruptcy in California, from learning whether you qualify, to completing and filing bankruptcy forms, to discharging your debts and getting on with your life.
Find out how the CDC eviction ban works in your state. We're tracking down the latest tools and information on the internet or you to use.
Can bankruptcy help stop an eviction? Well, it can delay it, for an extra month or two, in some cases, in some states, if you file early enough in the eviction process. And bankruptcy can be part of a broader financial strategy to keep a roof over your head. But you'll want to see a lawyer sooner rather than later to take full advantage of your options.