BANKRUPTCY AND DEBT STRATEGIES FOR THE CORONAVIRUS
It’s official. The Cornonavirus has economic consequences. Business owners face falling sales and shut-downs Workers face layoffs and furloughs. These mean less funds to pay for bills and expenses. So, what’s to do? As always, don’t panic. Similarly, whenever possible, don’t think. . .know.
Thinking of Bankruptcyif you’re out of work and have bills to pay, don’t rush into bankruptcy. You want a fresh start, not a false start. Waiting may be the hardest part. It’s also smarter, too. Why?
Timing Is Everything - Using a GraphicDaw a big U on a piece of paper.
Going from left to right represents Time, going from past to future.
Going up and down represents Financial Condition (up = better. down = worse)
Your crisis begins on the U's left side. Time takes you to its right side. To get a “fresh start,” for an individual, through chapter 7, it’s best to file at the U's very bottom. That way, you put the past's decline (left side) behind you and benefit from the better future (right side).
Filing prematurely, has you on the left side, continuing to go down. You don’t know when the crisis is over and may add debt as things get worse. That means the post-filing debt won’t get discharged. That’s a false start. Not a fresh one. Your timing is critical.
Factors may require more immediate action, like a scheduled foreclosure sale or garnishment. Still, thinking it through, not reflex, is required.
Don’t Use Exempt AssetsYou may have assets that creditors can’t take from you: exempt assets.
Examples are, some income, pensions, IRAs, insurance policies, home equity. You don’t have to use those resources to pay your creditors. Think three times before you use them to pay a creditor. If a creditor is not an immediate threat to losing an asset you need, saving that exempt asset may be wise.
Don’t Over-Fear LawsuitsBeing sued is no fun. Nor, for that matter is suing.
When a creditor threatens to sue you, what does it mean? It means that a court is going to say that the money is owed; the creditor has the right to use legal remedies to locate and take your assets; and apply them to their judgment.
Now consider, if all of your assets are exempt or you have no assets, there’s nothing to take. You may need to deal with the judgment later. After your crisis levels out.
Meanwhile, understand the limits of what you fear.
Business Owners - Be ProactiveUnlike individuals, waiting for the storm to pass could capsize your venture. Wishful thinking and hoping don’t work. You need to understand and deal with what you’re facing.
After 2008, we saw business owners who thought that their surviving prior down-turns meant they’d weather that one. They learned, too late, they were wrong and could have avoided their personal catastrophes.
Stay in touch with your creditors - Especially Business OwnersIt’s hard to believe that your creditors may be your silent business partners. They want you to succeed. So, they get paid. Hopefully, that cycle lasts for years. If you’re having problems communicate with them. You may get more help than expected.
Moreover, silence creates concerns. If they don’t know what you’re doing, they won’t trust you. If they don’t trust you, they’ll sue you.
Also, having an undersecured creditor may be a shield against unsecured creditors. The secured creditor has a lien and senior right to the assets unsecured creditors want. Usually judgnent creditors are junior to those liens. Keeping that secured creditor calm will proptect you against others. Their being partially unsecured creditors makes them want you to succeed.
Business Owners - Don't Bet the FarmThis is a corollary to don’t use exempt assets.
Hopefully, you've done business using an entity like a corporation or LLC. If you maintained it properly and not guarantied debt, you're personal assets will be protected from most of the business' debt.
You may be experiencing a “perfect storm” which could wipe out the business. Think four times before putting exempt assets into your foundering business. You will need those assets if the business fails, despite your efforts. If they’re sunk in the failed business, you are really adrift.
As Churchill said " Success is the ability to go from one faliure to another, without losing enthusiasm." Keep a reserve for the venture that brings you back.
Talk to SomeoneYou don’t know everything. You probably have misconceptions about bankruptcy, too.
It’s not sign of failure. It’s a tool to preserve what you’ve done. It’s a strategy to succeed.
Plus, there are lots of strategies, short of bankruptcy which may help. Talk to someone who knows them. There are a bunch of lawyers and accountants who can guide you.
Don’t wait for a letter from a lawyer offering help, after they saw you’re being sued. That means you lost an opportunity to consider all of your options.
Be proactive! If you had coronavirus symptoms, you’d do something about it, right? Saving your finances and business are no different.
Take Care of YourselfOn the human level, stay well.
On the practical level, you have to be there to help your professionals help you. That means, maintain your health and your energy.
No less important is mental and emotional health. If your head is not in the game, don't expect the results you want.
We appreciate the stress caused by debt problems. In rare circumstances, we'll tell cliens we won't be engaged if they don't seek help. We need our clients there for us to help them.
There's no embarrassment to getting help. If you couldn't walk, you'd get help. If depression keeps you in bed or stalled, it's no different.
Don't Worry (Yeah Right)In crisis, it's hard not to worry. However, it uses energy better focused productively elsewhere.
A wise man, whose community was under armed attack was asked, "are you worried?"
His response was, "everything that can be done is being done, and worrying will make no difference."
Do what you need to do. Give and receive support when you can.
Good luck and hang in there