The economy is circling the drain. SBA loans to small businesses ran out in less than a week. Stimulus checks are starting to arrive, sort of, but no one knows when. The country has been shut down for a month now and despite growing demand to reopen, many governors are reluctant. Meanwhile, the White House can’t make up its mind whether the President is in charge or not. And 20 million Americans are out of work.
If you’re one of the millions wondering what you’re going to do next, you might be considering filing bankruptcy. As a long-time bankruptcy attorney, as much as I’d love to have you as my client, my advice is don’t do it. At least not yet. Here’s why.
Bankruptcy is a One-Time Option. You can file bankruptcy once every eight years. It can be shorter than that depending on what type you file, but for Chapter 7, the kind most people think of when they think bankruptcy, it’s only every eight years. Hopefully things will be better in six months, but what if they’re worse and you’ve already filed? You’re stuck until 2028. Hold off as long as you can.
Relief is Out There. Some relief is being offered besides the stimulus checks. In Utah, the governor put a freeze on rent and evictions until May 15. It very well could be extended. If you’re renting, take advantage of that as long as you can. If you are buying your home and your mortgage is with a federally insured (FDIC) bank, there are similar freezes on foreclosures. In some states, like California, the state attorneys general are halting foreclosures under their regulatory powers. Even with no prohibitions from regulators, a lot of lenders aren’t going to foreclose anyway. They remember all too well having millions of dollars of foreclosed real estate to deal with during the last economic recession in 2009-2012. Courts are operating on skeleton staffs and calendars and are not hearing debt collection cases in general. It’s tough to do nothing, but nothing might be your best bet. If you have to choose between your mortgage payment and putting food on the table, feed your family.
Other Options Might Arise What we don’t know that we don’t know is the killer. We don’t know how much worse this will get, we don’t know when it will end, we don’t know how. People are creatures of action; they need to be doing something. If you’ve looked at Reason #1 not to file (bankruptcy is a one time thing); and Reason #2 (relief is out there) and still think you need to file now, it’s probably because you’ve considered those reasons and still feel that under the current circumstances, filing is best for you. Usually that type of analysis is valid. But this isn’t usually. In most times, the current circumstances, whatever they are, can be expected to continue, or you can see when and how they’re going to change (job layoff coming, for example). That’s not so now. This situation is fluid and changes by the hour. What’s true today might not be true tomorrow or next week. Because of this fluidity, I’m recommending you don’t panic and file bankruptcy too soon. Maybe in three months you won’t have to. Maybe you will. But if you don’t file now you’ll still have options.
What Else Not to Do. I’ve previously written about what not to do. You can read it here. In summary, don’t take on new debt, especially a home equity credit line; and don’t withdraw from your retirement account.
If you have questions about your particular situation, or want to discuss the bankruptcy options, contact us.