Here in Connecticut we are still in the midst of the COVID-19 lock down. Tens of thousands are unemployed and many are wondering how they will handle the mounting pile of bills.If you live in Connecticut and have lost your job or are struggling to pay your debt, you may need to file for bankruptcy. If that's the case, now is the time to think defensively.
The coronavirus pandemic that upended the economy is also expected to send unprecedented numbers of people and businesses to bankruptcy court. Millions are out of work, and economic disruptions could continue until a vaccine is widely available, something that may be more than a year away.
At our office in Farmington, Connecticut we are gearing up for a mountain of new bankruptcy filings.
If bankruptcy may be in your future, here's what you need to know now.
Don't wait to talk to us
People are usually advised to solve their debt problems on their own, if they can, or to consult a credit counselor, with bankruptcy as a last resort. But the people who come out of bankruptcy in the best shape tend to be the ones who got expert advice early. The initial consultation meeting with our Farmington, CT Bankruptcy Attorney is always free.
If you even think that there's a possibility that you're going to be in debt trouble, or you're not able to pay something, please get a free consultation before you make any kind of financial move.
That doesn't mean you should rush to file. Your situation could improve, or things could get much worse. Since Chapter 7 liquidation bankruptcies can be filed only every eight years, you'd want to file when you can erase the maximum amount of debt.
Don't touch your retirement money
This is one piece of advice that predates the pandemic: It's never been a good idea to raid your retirement funds. It's a particularly bad idea if bankruptcy might be in your future.
The new coronavirus hardship withdrawals allow people to take up to $100,000 from their 401(k)s or individual retirement accounts without penalty or mandatory withholding. The withdrawals are taxable, but people who can pay the money back within three years can amend their tax returns to get those taxes refunded.
But few people in financial crisis now will be able to pay the money back. More importantly money in retirement funds is typically protected from creditors and so should not be used to pay debt that could be erased in bankruptcy, such as credit cards and medical bills.
Don't let cash pile up
A cash buffer is important, but money in bank accounts can be seized to pay creditors. Your attorney will advise you about where to put extra cash. One option may be a Roth IRA. Any amount you contribute can be withdrawn tax-free at any time, and in the meantime it's protected from creditors. Dont ever move, sell or re-title assets without speaking with a bankruptcy attorney first.
Don't sell you stuff
People are often advised to sell unneeded possessions to pay down what they owe, and we often consult with people who have been to the pawn shops before they have thought to consult with us.. If bankruptcy' may be in your future, check with us first before selling your wedding ring first since the sale may be unnecessary or may be needed more later.
Also, don't give away assets, because a bankruptcy trustee — the person administering your bankruptcy case — could sue the recipient to get them back..
Don't pass up forbearance options
Because of the crisis, many lenders are allowing borrowers to skip some payments. The usual advice is to take advantage of such forbearance only if you really need to, since the debt will still have to be repaid.
But credit card debt and most other unsecured debt would be erased in a Chapter 7 bankruptcy, which is the type most consumers file. Secured debt, such as mortgages and car loans, usually isn't erased, but forbearance could help you save money for other necessities, including food, utilities — and paying your bankruptcy attorney
Forbearance is a great wait-and-see approach so that you're not (paying) out-of-pocket right now. You can see what's going to happen with your job, with your spouse's job, your situation.
If you are a Connecticut resident and facing mounting debt and unable to meet your obligations due to the Coravirus, contact us today for a free confidential discussion.