In Bankruptcy Information, Uncategorized

Coronavirus has the economy on the ropes. The market has given back all of the gains it made since Trump’s inauguration over three years ago, and the slide looks nowhere over. Retirement accounts, savings, investments are all down 20% or more.

Is it time to panic?

No, it’s well past that time. The panic has already begun. People have been dumping stocks and either hoarding cash (along with water and toilet paper) or buying so-called “safe” investments like gold and silver for weeks. That’s why the market is down. If you aren’t one of those people, don’t become one now. So far the losses are all paper. But once you start selling, they become as real as those empty shelves in the grocery store.

The markets will return. They always do. Fundamentally the world is no different than it was at Christmas. Yes, there’s a global pandemic going on. People are sick and in response to that we’re practicing social distancing, staying away from crowds, not traveling, not dining out. Restaurants, bars, movie theaters, shopping malls, car dealerships — all retail business is affected by this. People are being laid off. But no one is saying this will last forever. What we’re experiencing is painful but it’s temporary. Life will return to normal like it did after the dot-com crash in the early 2000s and like it did after the Great Recession in 2008. And look where the market went between 2009, when it started its rebound, and 2019, when coronavirus entered the picture.

What should you do?

If you’re contributing to a retirement plan, keep it up. Talk to your plan’s administrators or advisers about your allocation. If it’s too risky for your comfort level, consider a reallocation into something more conservative, but don’t liquidate just because the market is going down.

Should you buy? That’s a question that depends on your personal preferences and fortitude. Many people will make lots of money by buying as the market drops, because it will come back. But it takes a lot of courage to buy $500 worth of stocks today and see it turn into $300 next week, and then do it again. And again and again until the market turns. If you have that courage and can sleep nights, it might be worth it. Otherwise, for your mental health, I’d pass.

Save money. Cut back on your spending habits. It should be easy since dining out and vacations are off the list for now. Support the local economy by occasionally getting take out. After all, those people are harder hit than most. But cut back and save that money.

Don’t withdraw from your retirement accounts. This is never a good idea, even in a good market. It’s worse in a down market. The reason is, you’re subjecting yourself to a double whammy. You’re realizing the paper losses that the dropping markets have created AND you’re reducing the size of your investments so there’s less to grow when things rebound.

Don’t take out a home equity loan. Interest rates are down and might go down further. It might be wise to consider refinancing to lower your mortgage payments but DO NOT increase the size of your loan, either through refinance or a new home equity credit line. Real estate values might drop. They sometimes do in a down economy. If you add debt to your home loan, you could find yourself underwater with your mortgage. If the economy continues down and you lose your job, you might not be able to keep the mortgage payments up and you might be forced into selling. But if you’re underwater because you added debt, maybe you won’t be able to sell. Then you’re looking at foreclosure.

If things really get bad, there is one more huge reason not to withdraw from your retirement and not to take out a home equity loan. You might be facing bankruptcy. There is little doubt that coronavirus’s effects on the economy will drive thousands of people into bankruptcy. Retirement accounts are exempt from creditors’ claims, both in and out of bankruptcy. So don’t withdraw the money to pay creditors now. If you take out a home equity loan to pay back unsecured debt, such as credit cards or medical bills, you’ve turned unsecured debt, which is the easiest to deal with, into secured debt, which is much more difficult to handle in or out of bankruptcy. Furthermore, you have an exemption in your home. If you borrow against it, you’re giving your exemption to the bank. Don’t do it!

For over a decade we’ve enjoyed mostly good times economically. We aren’t used to down times. We can make it, but we’re going to have to be smart about it. If you are to the point that you just can’t see a way out, contact us.

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