Even with many states starting to open up after the lockdown quarantine caused by the coronavirus, many companies are filing for bankruptcy – several months without income and mounting debt is an awful combination.
Many huge companies have filed for bankruptcy, and the list continues to grow. Well known brands have declared bankruptcy, including J.C. Penney, Neiman Marcus, J. Crew, Gold’s Gym, Tuesday Morning, Bar Louie, Dean & DeLuca, Advantage Rent a Car, and Hertz.
Coresight Research is a company that tracks retail openings and closings, and at the beginning of the year, they projected that 8,000 stores would close this year. They’ve recently updated their projection to 25,000.
These companies won’t necessarily go out of business – filing for bankruptcy allows protection during a restructure, so debt can be shed, operations can be redesigned, and low-profit locations can be closed.
Small businesses were hit even harder
Beyond the big name brands that have filed for bankruptcy protection, thousands of smaller businesses have had to shut their doors. Hundreds of Dallas-area businesses have closed permanently due to the coronavirus lockdown. Dallas landmark club the Lizard Lounge closed after 28 years of business. Countless local restaurants have closed, and many more small retailers.
The US unemployment rate is hovering around 20% – that means 1 in 5 Americans is without a job. One of the most common reasons people file for bankruptcy is the loss of a job. With no income, debt piles up quickly. You still have to pay your bills, but you have no money coming in to pay them.
Even with the safety nets put in place by local and state governments, many people are still struggling with debt. As states start to open again and people can get back to work, those safety nets will likely go away. For most Americans, a few months without income is all it takes to reach the tipping point of out-of-control debt.
What about the coronavirus stimulus?
The government stimulus is definitely helpful, and many businesses were able to receive a PPP loan – but for many people, those are short term solutions. It’s important to look at your finances and figure out how far your stimulus check and local safety nets will go.
If you’re able to skip payments, pay attention to what actually happens. You’ll still be expected to make that payment, so find out when you’ll need to pay. While most local governments have temporarily halted evictions, tenants are still responsible for missed payments.
Many people who received their government stimulus have already spent it – and while there’s talk about an additional stimulus being sent out, for many people it will be too little too late. The average credit card debt for most Americans is about $5,700 – which means many people have significantly more than that. Missing a few payments will result in significant late fees and penalties, which can cause the debt to grow quickly.
Talk to your creditors
You should talk to your creditors to see what arrangements can be made during the crisis. Most mortgage and car lenders will allow you to defer payments, effectively letting you skip one to three months of payments and simply add them on to the end of the loan. Many student loans have allowed deferred payments as well. While most cities have prohibited the shutoff of utilities, you’ll still owe those unpaid balances – so talk to your utility providers to see what arrangements can be made.
Remember – you should NEVER skip a payment based on information you’ve read online or seen on the news. Always talk to your creditor first to be sure you’re following their rules and guidelines.
Filing for bankruptcy because of COVID
If you’ve lost your job and local concessions and the government stimulus aren’t enough to get you through the crisis, bankruptcy can help. Don’t believe the bankruptcy myths – you’re not irresponsible, and it won’t destroy your credit. Bankruptcy was created to allow people to get a fresh start when something happens to make their debt unmanageable.
If you’ve been laid off and you’re not able to pay your debts, bankruptcy might be inevitable. The sooner you file, the better – you’ll be able to rebuild your credit and get a fresh start.
One of the biggest benefits of Chapter 7 bankruptcy is that it allows you to completely wipe out your medical bills and credit card balances. In bankruptcy lingo, this is called “discharging” your debts. If you owe money for domestic support, tax debts, or student loans, Chapter 7 won’t let you forgive those – you’ll likely want to file for Chapter 13, which allows you to reorganize your debts and catch up by using a payment plan over several years.
Which type of bankruptcy should you choose?
Obviously, a blog post won’t be able to answer that question. I can tell you that most of our clients tend to file for Chapter 7 – especially when they’ve lost their job. You get to keep your property and the process doesn’t take long. you’ll take a means test, which determines if you’re eligible for Chapter 7. The means test looks at your income over the last few months and compare it to the median income in Texas.
If you’re jobless, you likely won’t have the income to be able to file for Chapter 13. Chapter 13 bankruptcy is intended for individuals with higher income who are able to pay some amount toward their bills, but might need some time to catch up on past-due payments. Again, you keep all your property, but you make payments to a repayment plan that lasts from 3 to 5 years.
Talk to an experience bankruptcy lawyer
If you’ve lost your job because of the COVID quarantine and lockdown, you should call us today at 214-760-7777 for a free consultation. There’s no obligation – we’ll simply talk to you about your financial situation and explain your options. Even if you don’t need to file now, it’s important to know what options you have. You don’t even have to come to our office – we can do virtual consultations, and cases can even be filed virtually. We’re here to help – because we know many Dallas residents are struggling and deserve a fresh start.