As the pandemic continues to ravage the nation, more and more everyday Americans are experiencing the same thing: a dramatic loss of income. Without income, you may be forced to rely on your savings, or even tap into retirement accounts. For many people, there may be no safety net other than unemployment payments.
If you’re facing this situation, you may be wondering: should I file bankruptcy?
While bankruptcy can be a viable solution for many people, it is not necessarily the right path for everyone. What should you know? In this post, we’ll explore important topics.
First, if you earn under $75,000 per year, make sure that you have received your stimulus checks. Two have been issued by the federal government thus far: a large, $1,200 check initially, and a $600 check around the end of 2020. A third may be on its way, but Congress is still attempting to iron out the details.
It Does Not Change Your Income
While financial pressure may make it seem like bankruptcy is the right decision, understand that it may not affect your financial situation in any tangible way. After all, if you are currently not earning any income, filing for bankruptcy will not change that. It only affects cash outflow, not inflow.
The 8-Year Limit and What You Should Know
While it can be tempting to pursue bankruptcy now to find financial relief, ask yourself – are you fine with the fact that once you file, you cannot do so again for eight years? That means you will have used perhaps your most important debt-relief tool and it will not be available to you again for a full eight years.
Why does that matter? Isn’t the pressure you’re under right now to pay your creditors exactly what Chapter 7 was meant to handle? In a way, yes. However, understand that the pandemic is still an evolving situation. There is simply no way to know what your financial situation will be like if it continues for another six months of a year.
Remember – filing bankruptcy does not necessarily mean that you will see an improvement in your financial situation. It does nothing to augment your income. And any new debts that you incur after filing bankruptcy will not be covered by a previously existing Chapter 7 plan. That means it is possible you could file bankruptcy but still find yourself hounded by creditors and facing financial hardships, unable to make ends meet.
That goes far beyond your ability to earn income. For instance, what happens if you contract the virus, but the government does not require insurers to cover all the related costs of your treatment? Insurance companies are notorious for finding ways to shirk their responsibility, and that could leave you responsible for paying tens of thousands of dollars in medical bills.
Do You Even Qualify?
To qualify for Chapter 7, you must pass a means test. This test extends back into your financial life for a full six months. If you have only been without income for a month or two, that could mean you do not qualify for Chapter 7 simply because you were earning a sufficient income in the recent past.
Finally, make sure you understand how Chapter 7 affects your assets. In this type of bankruptcy, non-exempt assets are liquidated to pay your creditors. The term “asset” doesn’t just cover things like second homes or additional vehicles. It can also include savings accounts and financial assets.
Still thinking about filing bankruptcy? We can help. Contact us today to schedule a consultation and we’ll walk you through what you need to know and help determine if this is the right path for you.
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Las Vegas, Nevada 89123