The U.S. unemployment rate hit 14.7% in April, the highest rate since the Great Depression. According to different sources, 20.5 million jobs were wiped away in the worst loss on record. These staggering numbers show the U.S. economy may be shattered. Individuals who are part of this group and are in debt are asking “should I be thinking about filing bankruptcy.”
Why Bankruptcy May Be a Good Idea
Individuals who are in debt and can’t pay their bills should not rule out filing bankruptcy. Bankruptcy is a tool to help individuals start over. Chapter 7 bankruptcy, allows individuals to wipe out their debt. While Chapter 13 bankruptcy, puts an individual in a repayment plan over 3-5 years.
When an individual files bankruptcy, creditors are no longer able to go after them. The Bankruptcy Code implements an Automatic Stay which stops creditors from trying to collect on owed debts. This means creditors can no longer garnish wages, foreclose, or sue an individual for failing to make good on their payments.
Bankruptcy can be useful for people who can’t make ends meet each month. By filing bankruptcy individuals can start saving their money instead, of paying all of their creditors. Moreover, filing bankruptcy stops interest, fees, and late charges from accruing. Often, individuals faced with debt are barely able to make a dent in their credit card debt because of high-interest rates and fees. Filing bankruptcy can stop or eliminate these accruing fees.
Why Should I Consider Filing Bankruptcy Now?
Below we will discuss why it may be a good time to consider filing bankruptcy now rather than waiting.
Don’t Wait Until Its too Late to File Bankruptcy
Individuals often wait until it is too late to file bankruptcy. To file for bankruptcy you must qualify under a Means Test. The Means Test takes an individual’s last 6-months of income and compares it to the State’s median income of similar household size. Individuals who wait to file until they have a new job may be over the income limits. Often, it is hard for people who have fallen behind to catch up on credit card payments later. If an individual loses their job, it is important to speak with a bankruptcy lawyer sooner rather than later.
Don’t Take Out All Of Your Retirement Funds to Pay Off Your Creditors
Under the CARES ACT, individuals can take up to $100,000 as distribution in a calendar year from their retirement accounts, and the normal 10% early withdrawal for people under 59 1/2 is waived. Individuals will still owe income taxes on their withdrawals but are allowed three years to pay it back. This may sound great for many people. However, it is never a good idea to wipe out retirement savings to pay creditors.
Individuals who are contemplating wiping out their retirement funds should speak with a bankruptcy lawyer first. Retirement accounts are exempt in bankruptcy. This means individuals may be able to wipe out their debt and still keep their retirement accounts safe from creditors. Before emptying any retirement account, individuals should speak with a bankruptcy lawyer.
Filing Bankruptcy Due to Medical Bills
Due to the coronavirus pandemic, individuals may be facing hefty medical bills. Any procedures that are not covered under an individual’s health insurance plan can be included in a bankruptcy filing. Due to being on unemployment, many individuals may not be covered under a medical plan. Medical bills can be extremely costly. Speaking with a bankruptcy attorney on ways to get out of medical debt can be vital to an individual’s financial hood.
Filing Bankruptcy For Business Debt
Due to the pandemic, a wave of small business bankruptcies are soon. More than 40 percent of the Nations 30 millions small businesses could close permanently. According to the American Bankruptcy Institute, commercial bankrutcies increased 4 percent since the same time last year. Business owners who are stuggling to pay their debts should speak with a business bankruptcy attorney immediately. The Bankruptcy Code affords different protections for small businesses.
Depending on the way a business is set up determines who should qualify for bankruptcy. Many business owners personally guarantee their business debts without even knowing. When a business owner personally guarantees their business debts, creditors can go after them and their assets. For many, this can be a huge problem. It is important to start speaking with a bankruptcy lawyer sooner rather than later so that individuals can properly wind down their business before filing bankruptcy.
Educate Yourself On What You Should Not Do Before Filing Bankruptcy
Individuals who think about filing bankruptcy, are often not aware that there are rules that need to be followed beforehand. Not everyone is allowed to get a bankruptcy discharge. It is important to speak with a bankruptcy lawyer sooner rather than later otherwise, individuals thinking about filing bankruptcy may end up doing something that may disqualify them from filing bankruptcy. Below, are some examples of things individuals should not do before filing bankruptcy:
Paying back friends or relatives before filing bankruptcy
Although individuals may believe it is important to make things right with family and friends who helped them during their financial hardship, paying back these people before filing bankruptcy, can be a huge problem. The Bankruptcy Court looks at these payments to these individuals as preferential treatment which is forbidden by the Bankruptcy Code. The Bankruptcy Court wants every creditor to be treated the same. The Bankruptcy Court doesn’t think it’s fair for friends and relatives to get paid back the money that is owed to them while your other creditors get nothing. If an individual pays back their friends or family members before filing bankruptcy, the trustee can sue them to recoup the money that was paid. It is important to speak with a bankruptcy lawyer before transferring, giving away, or paying back any money to friends or family members.
Transferring property out of your name
Individuals who transfer property out of their name before filing bankruptcy can get in trouble. The Bankruptcy Court views this as fraud. Individuals contemplating bankruptcy mustn’t transfer anything out of their name before filing. Many states have a look back period for transfers. Individuals with property should seek out a bankruptcy attorney who can help them. Most people are unaware of bankruptcy exemptions that can be used to safeguard property. Individuals assume that if they file bankruptcy their property will be taken away. This is not true. Bankruptcy exemptions allow individuals a way to keep their property while still eliminating their debt.
If you or someone you know is wondering if you should file bankruptcy it may be time to sit down and speak with a bankruptcy professional who can help you. Karra L. Kingston Esq. provides free bankruptcy consultations over the phone. Give us a call today so that we can review your financial situation and determine which debt relief route is best for you. You can call us at (973)-979-9078.