Should Bankruptcy Be Part of Your 2023 Post-COVID-19-Forbearance Financial Plan?

 

Consumer bankruptcy filing reached a 34-year low in 2020. It remained low in 2021 and 2022 because forbearance and stimulus programs prevented regular collection efforts, like wage garnishment and foreclosure, which usually prompt people to recognize how dire their situation is — prompting them to file. Will 2023 be the year you need bankruptcy to help protect your assets like your IRA and your home? Whether or not you're ready to file, the time to start asset protection planning with a bankruptcy attorney IS NOW, to avoid common mistakes, like giving away assets you would be entitled to keep in bankruptcy in the year to 18 months before filing.

ADVERTISEMENT -
AD_GOOGLE_2_RESPONSIVE_PRE_CONTENT

.
 

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. It continued that way in 2021 and 2022 because forbearance, student loan deferral, and unemployment insurance programs postponed regular collection efforts, like wage garnishment and foreclosure, and stimulus checks increased low-income checking account balances

But just as 2020, 2021, and 2022 were not the years to file consumer bankruptcy, 2023 may be the year that millions of Americans learn that bankruptcy is, once again, an essential tool for stopping collection efforts, protecting assets, and moving forward with a fresh start, free of debts accumulated during the time of pandemic related lockdowns, and perhaps even student loan debt, in appropriate circumstances. 

Even if you decide NOT to file bankruptcy, the time to have an asset-protection planning meeting with a bankruptcy attorney IS NOW, to avoid common mistakes, like giving away assets you would be entitled to keep in bankruptcy in the year to 18 months before filing.

To discuss your options, a consultation with a bankruptcy attorney may be a wise move for many people with substantial debt, especially if you have assets protected by exemption laws, like retirement accounts.

Plan Now - File Later - Bankruptcy as An Asset-Protection Strategy

Several financial columnists wrote at the beginning of the pandemic (before the relief programs began) 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 

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 essential 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 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.

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 your life savings in your 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 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 your retirement account saving are off-limits to creditors... unless you voluntarily hand them over! 

So... talk to a bankruptcy lawyer today, as you navigate these treacherous financial waters in the coming year to 18 months, to preserve the financial rights you have. 

For the sake of your loved ones, don't fail to take of advantage of the many protections that bankruptcy law affords to consumers because you didn't know what protections were available in the year preceding your bankruptcy.  

As bankruptcy veteran Cathy Moran explains, bankruptcy is part of a comprehensive financial survival strategy, not a "last resort." 

Bankruptcy is not the 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."

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 a bankruptcy attorney now, if you think bankruptcy might be possible within the next year. But don't let a bankruptcy mill force you into filing a bankruptcy you don't need. A responsible bankruptcy lawyer should be able to advise you on the full suite of debt relief remedies available to you, with bankruptcy being just one. 

Don't make costly mistakes in the year 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 by learning about the following:


ADVERTISEMENT -



Jurisdictional relevance: US

Legal Consumer - Neshoba County, MSLaw. The content of this article pertains to all US states and counties.