2020 has been a landmark year. Covid-19 has wreaked havoc on the economy and many feared that bankruptcy would be on the increase, as with previous pandemics. Interestingly, according to a recent study by Harvard Business School, bankruptcy has actually decreased since mid-March 2020.
While large corporations are still exercising this option, fewer small businesses and consumers have filed for bankruptcy. Possibly because governments, banks and other financial institutions around the world have offered more assistance than ever before.
Also, many small businesses found ways to pivot or take their brick and mortar businesses online, while many people who lost jobs during the pandemic figured out ways to use their existing skills to make money online.
But what happens when pandemic assistance runs out? And what if you haven’t found a way to save your financial situation fast enough? When should you consider filing for bankruptcy?
What’s the best time to file for Bankruptcy?
In this post, we’ll cover some of the benefits and drawbacks of declaring bankruptcy to help you make an informed decision. However, it’s a huge subject, we can’t possibly know your situation and cover every angle, which is why we highly recommend seeking legal assistance.
If you feel like you’re drowning with debt, with no way out, the best thing you can do is book a consultation with a reputable legal firm like these Birmingham bankruptcy lawyers. They can advise whether bankruptcy is the best route to take in your personal circumstances.
Let’s start with the drawbacks – these are the reasons people fear filing for bankruptcy.
3 Reasons Not to File for Bankruptcy
Bankruptcy is not a decision anyone takes lightly. It’s a scary prospect and for good reason – it carries some hefty implications which can linger for years.
1. Loss of Credit
Bankruptcy remains on your credit record for 7 to 10 years. During this time, it will be near impossible to get a loan or apply for a credit card. You will most likely be subject to higher insurance rates as well. And it may even make it difficult for you to get a job or rent an apartment.
2. Loss of Assets
In the case of liquidation (Chapter 7 bankruptcy), some of your assets (such as secondary property, cars or non-retirement investments) will be sold in order to pay your creditors. In a Chapter 13 bankruptcy, you might be able to hold onto your assets as long as you repay all your debts within 3 to 5 years.
3. Loss of Status
Declaring bankruptcy can have psychological and social effects. Some may fear losing their place in society, even if their friends and family are supportive and it was the best course of action to take.
Now that we’ve covered why you might want to hesitate before declaring bankruptcy, let’s look at why you would go ahead, regardless of the 3 reasons above.
5 Reasons to File for Bankruptcy Now
Here are a few of the signs it’s time to file for bankruptcy as well as the benefits of doing so. If this was your situation right now, you might want to give some serious consideration to declaring bankruptcy.
1. Little or No Income
If you’ve been unemployed for a long time or you’ve had to close your business and you’ve exhausted all your savings, you will eventually find yourself in a position where you can’t meet your basic living expenses anymore. This is the primary reason to declare bankruptcy. Filing for bankruptcy should give you the chance to rehabilitate.
2. No Way to Pay Down Debts
You’re paying and paying month after month but your debts are not reducing. This is a sign that you’re only managing to pay the interest on your debts (servicing your debt) rather than paying off the principal debt.
If you can’t pay off your debts in 3 years it may be time to seek legal assistance.
One of the prime benefits of declaring bankruptcy is no longer having to receive those dreaded calls from your creditors.
Declaring Bankruptcy triggers an automatic stay, which stops creditors from taking legal action against you. This can significantly decrease your stress levels.
3. About to Lose Your Home
If you’re struggling to pay the mortgage or car loan repayments, filing for bankruptcy might help you because the automatic stay also stops or delays creditors from repossessing your personal property.
Filing for bankruptcy can put a stop to foreclosure and delay you being evicted from a rental property. It will also stop the banks from repossessing your car temporarily, buying you some time to get back on your feet.
4. Being Sued for Bad Debts
If you file for bankruptcy the automatic stay will stop any lawsuit against you for unpaid debts.
5. About to Get Divorced
Divorces can get messy… especially when you’re facing financial ruin as a couple. That’s why couples sometimes declare joint bankruptcy before they get divorced. This way they can have their assets split for them beforehand rather than fighting over the splitting of assets during the divorce. It can save time, money and heaps of stress.
This is not an exhaustive list. There are many more reasons this might be the best time to file for bankruptcy. To name a couple of examples… if you’ve just landed a higher paying job or you’re about to inherit property, but want to free yourself of your old debts. But these are not clear cut cases and would most definitely require legal scrutiny.
So what’s the best time to file for bankruptcy? Generally, it’s when your lack of income and mounting debt has become more unbearable than the stigma of going bankrupt. Basically, when you’ve run out of other options.
It’s not an easy out, by any means, but it is an out. And if you don’t beat yourself up about it, you’ll be able to uncover the lessons and the upside. Because remember, there’s always an upside.
Take heart, the sun will shine again. Others have navigated their way through this and you will too.
This post was sponsored by The Harris Firm, Attorneys at Law. All opinions are my own.
Disclaimer: The information provided on this website does not, and is not intended to, constitute legal advice; instead, all information, content, and materials available on this site are for general informational purposes only.