Last March, I wrote that coronavirus will bankrupt more people than it kills. I still believe that to be true. When Covid-19 hit and the economy shut down, pretty much every bankruptcy practitioner such as myself expected a wave of bankruptcies in 2020. So far that hasn’t happened. There are a number of reasons for that, among them being the federal aid programs such as the PPP loans, and stimulus checks, and state and federal programs that put moratoriums on things like repossessions, evictions and foreclosures. As I write this, new stimulus checks are being deposited and Congress is debating whether to increase the stimulus payment from $600 to $2,000 per person.
The Mortgage Bankers’ Association reported in November that loans with delinquencies of 90 days or greater are at their highest level since 2010, the height of the financial crisis that began in 2008, even though foreclosures are at their lowest rate since 1982. Home prices have not declined like they did in 2010, which means that homeowners have equity that they probably will want to protect.
Most people don’t consider filing bankruptcy until a triggering event occurs. This could be a foreclosure notice, a collection lawsuit, or a vehicle repossession. As the Covid vaccine becomes more widespread and the economy reopens, eventually the moratoriums on foreclosures and tenant evictions will end. Relief programs will also come to an end. When that happens, people will start receiving foreclosure notices and collection actions against delinquent debtors will ramp up. That’s when the wave of bankruptcies will start. Once it begins, most observers expect it to become a tsunami fairly quickly.
What Should You Do?
If you’re among the millions of people with looming financial problems that haven’t become acute yet, now is the time to take stock of your situation and make some plans.
Inventory your financial assets. Just as millions did last March with their food and other household supplies, take stock of what financial assets you have. This includes home, savings, retirement accounts, motor vehicles, and any investments. Consider how best to use these assets in the future, taking into account different possible scenarios.
Talk to a financial professional. If you’re unsure about how best to deploy your financial assets, talk to a financial professional. If you aren’t sure how to make a budget, find someone to help you.
Watch the news for new relief programs. There may still be dozens of relief programs available or to come. Make the effort to learn about them.
Don’t panic. If 2020 taught us anything, it should be that panicking seldom does anyone any good. We all recall the pictures of shoppers with carts piled high with rolls of toilet paper. There was never a time in 2020 when toilet paper became something we needed in order to survive, but didn’t have. The same reasoning is true with respect to financial assets. Don’t go on a panic spree, liquidating your retirement account and putting all your assets into supposedly safe things like gold, silver or Bitcoins.
If things get really bad, take action. The reverse of panic is to ignore problems until they become huge. When financial issues come up, deal with them; don’t ignore them until it’s too late. If you get a foreclosure notice, talk to your lender, talk to an attorney, research your options. Make a plan and then execute it.
Don’t incur more debt or invade your retirement accounts. Two common reactions to financial adversity are to borrow money to catch up; or to make withdrawals from retirement accounts. Both are usually bad ideas. Don’t do either without talking to a professional first.
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