Bankruptcy, Debt and Covid-19

  • March 24, 2020
  • Balam Letona
  • Comments Off on Bankruptcy, Debt and Covid-19

The coronavirus pandemic will result in job losses and economic turmoil. The number of folks filing for unemployment jumped over 70,000 compared to the week before. Goldman Sachs predicts unemployment claims to reach over 2 million. Many of those immediately affected will be those in the hospitality industry, but economist expect it to spread to most sectors of the economy. As a Santa Cruz bankruptcy attorney, I am depressed to think about the job loss and pain that will be inflicted on my those in the hospitality industry. Santa Cruz County is a tourist destination. Our local businesses rely on our local community and visitors to keep our restaurants, bars and hotels open. I fear that the current downturn will force local businesses to close.

With that said, I anticipate that many people will find themselves unable to pay credit card and other debt. What is happening now brings back memories of the last Great Recession that began in December 2007. As a Santa Cruz bankruptcy attorney during that time I visited with many consumers who later filed bankruptcy that would have done things differently if they’d been better informed. In fact, 100% of the consumers I met with never thought they’d have to file for bankruptcy protection and did all they could to stop that from occurring. In doing this some made errors with their financial assets that later they regretted. Some items that stand out:

Waiting Until It’s Too Late

Some people exhaust all of their savings, retirement accounts or sell personal property in an effort to pay off debt. When they’ve done this and realize that they have nothing they then seek to consult with a bankruptcy attorney. Don’t do this, speak with a bankruptcy attorney when you suspect you might be in trouble. Most attorneys, like myself, provide brief phone consultations.

Cashing Out Retirement Accounts to Pay Unsecured Debt

Under most circumstances, retirement accounts are protected in bankruptcy. California allows a consumer to exempt 401k’s and private and public retirement benefits. It makes little sense to use money in a retirement account to pay off credit card debt if you later file bankruptcy. Again, seek the advice of a bankruptcy attorney before you remove retirement savings to pay off credit card debt or other unsecured debt. Debt that does not secure or collateralize property, like a car or house is generally unsecured debt.

Borrowing Against Your House

If you have equity in your home do not borrow against your house to pay off credit card debt without consulting with a bankruptcy attorney. Everyone’s situation is different, but best to seek the advice of a professional before taking that step. You don’t want to jeopardize possibly losing your home.

Lawsuits Take Time and Are a Last Resort

Most creditors will sue you as a last resort. Many aren’t going to rush to the courthouse if you’ve missed one or two payments. It has been my experience that most credit card companies will wait six months to a year to sue after non-payment. Of course, all situations are different, but given the current pandemic most courts have limited hours and nearly every court has delayed trials by at least 3 months. In other words, everything has slowed down. Even so, if you do get sued the legal system is purposefully slow and gives you time to negotiate a settlement during the lawsuit.  However, if are sued you must answer the complaint within 30 days of receipt. The Judicial Branch of California has a website dedicated to what to do if you are being sued. In the next post, I’ll provide more resources on how to respond to a lawsuit. In the meantime, be well. 

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