On March 26 I wrote a post saying that coronavirus will bankrupt far more people than it kills. We’re seeing that come to fruition. Two large businesses have filed bankruptcy just in the last week: J Crew and Gold’s Gym. Oil drillers have already filed and thousands of mom and pop operations have effectively filed by closing their doors. Forbes magazine has a list of several notable companies that have filed. The laid-off employees in those businesses will, in many cases, also file.
I also wrote a post on April 16 suggesting that it isn’t time to file just yet. I and most other bankruptcy practitioners stand by that, at least for the time being. Here’s a link to a great article outlining the reasons not to panic just yet.
It’s hard if you’re out of work not to think that bankruptcy is the only option, but try to hold on, at least for a little longer. When it comes to what bills to pay, you have to prioritize. Keeping a roof over your head and the utilities on, along with putting food on the table should be your primary concerns. Here’s an interview with one woman facing this issue.
If you’re renting, talk to your landlord. There has been a rent moratorium in Utah since April, but that’s going to end, and when it does, landlords will want to be paid. Evictions can continue, even though the courts are on skeleton staffs. So, landlords might be less willing to work with you. On the other hand, if you get evicted, they must find a replacement tenant. That involves cleaning the rental, advertising it for rent, and getting new tenants. With everyone facing the same problems, landlords might be willing to accept lower rent from you for a few months. Talk to your landlord!
If you’re buying, you have several options. Again, they begin with speaking to your lender. Banks don’t want to foreclose. They much prefer loans that are being paid. Each lender might have its own loss mitigation plan. Payments can be deferred. The lender might give you a forbearance for a few months. It’s important to know the difference between deferral and forbearance. A deferral means the payments are deferred to the end of the loan, all of them coming due when the loan is due. A forbearance means that the payments are suspended for a time, but when the forbearance period is over, those payments must be made up. A forbearance is usually for a shorter period of time, while a deferral can be for several years. Before you enter into either, make sure you know what the terms are and what happens at the end of the forbearance or deferral period.
If you simply can’t make your mortgage payments and your lender won’t work with you, know that you will have several months before a foreclosure can be completed. Most lenders won’t begin foreclosure until you are at least 90 days delinquent, though technically a lender can begin foreclosure when you are a day late. The foreclosure process itself takes about four months. From the day you miss your first mortgage payment until the house is sold at a foreclosure sale is usually at least seven months. The foreclosure process begins when the lender files a Notice of Default with the county recorder and mails a copy to you. You have three months from the date of the Notice of Default to bring the loan current. If you don’t, the lender can give another notice, a Notice of Sale, that sets the time and date of the foreclosure sale. If you receive a Notice of Sale, you must take immediate action! A sale is final.
Utility companies have payment options and are working with customers affected by Covid-19. Once again, speak with them.
Car payments are much like mortgages, except the bank doesn’t have to give you notice before it repossesses your car, and a sale can take place much quicker than a mortgage foreclosure. The advice here is the same: talk to the bank. Like mortgage companies, they don’t want the car; they want the loan to be paid, and they’ll probably rather work with you to get it paid than take the car back.
What Not to Do
I want to repeat what I’ve said in other posts: Now isn’t the time to take out a home equity loan to pay off credit cards and other unsecured debt. Unsecured debt goes away easily if you do have to file bankruptcy. By taking out a home equity loan to pay unsecured debt, you’ve made that debt much harder to discharge in bankruptcy. Also, don’t dip into your retirement accounts. They are exempt from creditors’ claims. If you must file bankruptcy, they can’t be touched. I once had a debtor with over $800,000 in his retirement account. The trustee never even blinked at that. The trustee knew he couldn’t touch it.
If you do have to file bankruptcy, it’s not the end of the world. Bankruptcy is there as a safety net. Everyone needs a safety net occasionally. If we can help, please contact us.