Should I file bankruptcy now or wait in the wake of COVID-19?

Posted by Laura L. DonaldsonMar 16, 2020

We recognize that a number of families live paycheck to paycheck. In the wake of COVID-19, many families may be forced unexpectedly to live without their usual source of income. Unemployed individuals are finding no job interviews are being offered due to social distancing. Sporting events have been canceled resulting in temporary layoffs of workers. Schools are closed requiring increased daycare costs. To create social distancing and prevent the spread of the virus, businesses and retailers are temporarily closing their doors. In some instances, both employees and business owners will be without pay. Without income, many families will turn to credit to help them get through this international health crisis.

The government is working on the problem. On March 14, 2020, the U.S. House of Representatives passed H.R. 6201, a bipartisan coronavirus response bill.  Included in the bill are comprehensive mandated paid employee leave provisions related to the coronavirus outbreak.  The bill seeks to provide employment protection for employees among other provisions. It still will take some time to progress through the Senate. Relief can't come fast enough.

The use of credit is a valuable resource to provide needed help through a tough financial time. Consumers and businesses may turn to credit cards and personal loans to supplement their income for monthly expenses such as food, medicine, transportation, and housing.  These are basic human needs essential for the health and welfare of every family.

If you were contemplating bankruptcy but are now facing a situation where you need your credit, here are some things to ask yourself as to whether you should file a bankruptcy now or later.

  1. Do you need your credit? If your income sources are limited and you won't be able to meet your monthly basic needs (food, shelter) you should wait to file a bankruptcy. Utilize your credit to get through until you are able to return to work. Do not take loans against your 401k or retirement sources! 401k monies are protected from your creditors. Chapter 7's can only be filed once every 8 years.  The logic is if you file a bankruptcy now and then need your credit to supplement your income, you are left without a valuable federal tool for another eight years to eliminate your debt.
  2. Do you have a foreclosure pending? The health crisis is not stopping lenders from proceeding with their foreclosure remedies if you are delinquent in your home loan. The question about whether to file a bankruptcy depends on many factors including a) if you have only been threatened with foreclosure but no foreclosure process actually started b) your ability to begin paying your mortgage again if you haven't been able to do so previously and c) if a sale date for your home is actually scheduled. If you aren't sure, contact our office for an analysis of timelines, your rights and remedies and whether you should file now to protect your home.
  3. Are your wages being garnished? If you have money being involuntarily being taken from your paycheck for matters other than child support, you still may wish to file bankruptcy now.  Filing bankruptcy will free up additional income in your household to help meet your basic daily needs.  

We understand this is a very scary time for many. In order to make the most informed decisions for yourself and your family, it is important that you evaluate your resources, review your budget and determine your basic needs. If you need your credit to get by wait to file a bankruptcy until you determine that your family can make it with the regular income provided by other sources.  If you need help in making that assessment, call our office. Our attorneys have been assisting individuals and businesses in evaluating their household budgets for more than 15 years.  Let us help you through this difficult time.

All our best to you and your family in health and financial well being!

Kuni Donaldson, LLP