Start thinking bankruptcy now, not later By NerdWallet May 5, 2020

Start thinking bankruptcy now, not later 

By NerdWallet
May 5, 2020 

If you've lost your job or struggle to pay your debt, you may need to le for bankruptcy. If that's the case, you should ignore some common financial advice and start thinking defensively. 

The coronavirus pandemic that upended the economy is also expected to send unprecedented numbers of people and businesses to bankruptcy court. Millions are out of work, and economic disruptions could continue until a vaccine is widely available, something that may be more than a year away. 

"I am gearing up for having a tsunami of new cases," says Jenny Doling, a bankruptcy attorney in Palm Desert, California, who serves on the American Bankruptcy Institute's Chapter 13 Advisory Committee. "I think there will be a whole lot more people ling than what anyone's ever seen before."

If bankruptcy may be in your future, here's what you need to know now.

DON'T WAIT TO TALK TO A BANKRUPTCY ATTORNEY 

People are usually advised to solve their debt problems on their own, if they can, or to consult a credit counselor, with bankruptcy as a last resort. 

But the people who come out of bankruptcy in the best shape tend to be the ones who got expert advice early, Doling says. You can get referrals from the National Association of Consumer Bankruptcy Attorneys, and the first meeting is typically free. 

"If you even think that there's a possibility that you're going to be in debt trouble, or you're not able to pay something, go get a free consultation before you make any kind of financial move," Doling says.

That doesn't mean you should rush to file, however, says John Rao, staff attorney for the National Consumer Law Center. Your situation could improve, or things could get much worse. Since Chapter 7 liquidation bankruptcies can only be led every eight years, you'd want to le when you can erase the maximum amount of debt. 

DON'T TOUCH YOUR RETIREMENT MONEY 

This is one piece of advice that predates the pandemic: It's never been a good idea to raid your retirement funds. It's a particularly bad idea if bankruptcy might be in your future. 

The new coronavirus hardship withdrawals allow people to take up to $100,000 from their 401(k)s or individual retirement accounts without penalty or mandatory withholding. The withdrawals are taxable, but people who can pay the money back within three years can amend their tax returns to get those taxes refunded.