The COVID-19, Coronavirus pandemic has been hard on virtually all of humanity. You would have to search far and wide to find somebody on the planet, somewhere, who has not been negatively affected by the virus. At the very least, even if you haven’t lost a job or loved-one, you have likely suffered emotionally at the stress of all the changes and risks of ill-health surrounding you.
At its worst, it has killed a loved one or even you. If you and yours survive, contracting it can cause agonizing pain, emotional stress, and social isolation. If you escape physical harm, you may face the loss of a job or a reduction of income. This can lead to credit card debt, home foreclosure, auto repossession, or the loss of valuable assets just to keep your head above water.
So COVID-19 has slashed your income. What can you do about it? Currently, it’s not so easy to get a job. Lot’s of businesses are closed – some temporarily; some permanently. Or maybe you don’t feel comfortable going out and getting a new job right now, especially if you are in a field that’s been hit hard by the pandemic. Industries like healthcare are significantly more dangerous than they once were.
If this is you, and you’ve had a dramatic cut to your income, you’re probably scrambling to keep your head above water. You’ve got to look into all your options. Unemployment, stimulus money, food stamps, Medicaid, and other government and charitable organizations are there to help. You should look into all of your options right away. You have to get the ball rolling on any help that’s available to you.
Once you’ve got help on its way, you have to consider what to do next. A lot depends on the current state of your financial affairs. Let’s take a look at this in depth.
Your Bank Account
If you’ve got a lot of money in the bank, this might hold you over until your income gets back to normal again. Your grandad probably told you about the importance of a rainy day fund. This pandemic is the very definition of a rainy day. You may not want to have to tap into your savings, but these are the hard times you’ve been saving for.
Maybe you don’t have money in the bank. That’s okay, because that’s most of us. Don’t sweat it. You may have other items of value that you could sell to create some cash to help you weather the storm.
It can be surprising how many assets you’ve accumulated when you take into account everything you own. You might have a second car, motorcycle, boat, or other recreational vehicle that you could turn around and sell. Maybe you’ve got power tools or exercise equipment that you no longer use. They always sell for good money.
At minimum, you can probably do a spring cleaning and have yourself a socially-distant yard sale to make a few extra bucks. If you aren’t working, you could use that extra free time to your advantage. Not only will it earn you some extra money, but it could make your lifestyle a bit more clutter-free to boot.
A lot of us out there have random assets that we forget about. You might have some random stocks or bonds you could sell for a temporary injection of cash. What about a whole life policy? They often have a cash value. Maybe you’ve got a coin or stamp collection that no longer interests you. Try to make a detailed assessment of absolutely everything you’ve got. You never know what valuable you acquired in the past that you may have forgotten about.
It’s Who You Owe
Hopefully you’ve either got cash in the bank, or you’ve been able to scare up some money following the steps above. If this hasn’t worked for you, you can also look into forbearance on your mortgage or rent. Maybe you can’t generate extra money, but at least you can delay paying some of your bills.
This raises a very big issue – one that could be even more critical than your income. Who do you owe? What kind of bills do you have? Have you been living under your means, or have you been spending beyond what you could ever pay with the good income you once were making? Has credit made your lifestyle more lavish than you could ever hope to pay for?
If you’ve got reasonable every-day expenses and are living mostly debt free, you might be able to handle the potential, financial devastation of this pandemic in stride. But if you’ve been living a life based on credit, you might be in trouble. If you can only afford to pay your minimum credit card balances, you might be in trouble. Maxed out credit cards and piles of other debt are a financial powder-keg. One small interruption in your ability to pay, and the whole house of cards comes down.
As you miss payments, fees and penalties begin to multiply. If it was difficult to pay with consistent earnings, it becomes impossible when COVID-19 steps in to slash your income.
Living off of Credit Cards
Maybe you’ve lived within your means, but now your income has taken a hit. If you’ve been careful, you might have thousands of dollars available to put on your credit cards. With no money coming in, living off of these cards might be your only option. You might be the type who always pays the balance in full, but these are unusual circumstances. Growing your credit card balance may be the only way to keep the lights on. But there’s only so high you can go. At some point, you’ll bump on the ceiling of those spending limits. When that happens, it will be time to pay the piper.
What to Do When the Bills Pour in
You’ve got to keep the lights turned on and food on the table. So when credit card and other non-essential bills start to pile up, you’ve got to prioritize. Most people aren’t going to pay Visa when they can barely afford to pay the power company. This is just common sense.
You can only avoid these “non-essential” bills for so long. Eventually they will get judgments against you. This allows them to pursue you in ways that are more aggressive than threatening phone calls and letters. They might take steps to garnish wages or levy bank accounts.
You might scoff at this. Thanks to the pandemic, you’ve got no job and no money in the bank. That may be true. If that’s the case, there’s not a whole lot they can do to you – at least for now.
What happens when you eventually start working again? They will happily begin their wage garnishment once you’ve got wages for them to garnish. If you start putting some money back into your checking account, they will happily levy your account to pay off your debts.
Unfortunately, it’s clear that avoiding these bills can’t go on forever. So what can be done about it? Are you simply at the mercy of the credit card companies as they garnish and levy at will?
Bankruptcy to the Rescue
It now should be clear how easily the COVID-19 pandemic could lead to insurmountable credit card and other debt. Being in that much debt can seem like a dead-end street, but bankruptcy can turn things around for you. It can eliminate your debt problems so they won’t be a burden while you try to get back on your feet again.
How Does Bankruptcy Work?
Bankruptcy is easier than most people think. Sure, there’s a lot that goes on behind the scenes, but that’s what your attorney is for. He or she has spent at least 19 years in school (not counting kindergarten) and several years as a practicing attorney learning and doing all there is to do and know when it comes to bankruptcy.
So what effort does it take from you to file?
You’ll have an initial meeting with an attorney. You will have to present a complete and detailed record of your financial history going back the last few years. As a client, your attorney will expect you to provide documents like taxes, pay stubs, bank statements, and you’ll have to answer a lot of details about your spending and expenses.
The good news is, even though it sounds like a lot of effort, it’s only going to take a few hours of your time – including the meetings that you have with your attorney. It’s not a lot to ask considering you will be eliminating tens of thousands of dollars of debt by filing for bankruptcy.
The best part is, most bankruptcy attorneys offer a free consultation. As long as you are willing to spend some time going over your situation with a qualified bankruptcy lawyer, you can find out all there is to know about bankruptcy and whether or not it’s a good option for you – all without spending a dime.
Is There a Down-Side to Filing?
Yes. Aside from the time and work involved, filing for bankruptcy does affect your credit score, and it will stay on your credit report for up to 10 years.
Sounds scary right?
It’s not quite as bad as it seems. You can begin rebuilding your credit right away. Within two years, you should have a pretty good credit score again. We’re talking a good enough score to qualify for a home.
Speaking of buying a home, that’s another thing you’ll have to wait for. Most mortgage companies will require a two-year waiting period from the end of your bankruptcy. So if you’re looking to buy a home right after filing for bankruptcy, you will have to reconsider. However, if you are considering bankruptcy, it’s unlikely your credit and financial situation is strong enough to qualify for a home anyway. Even though bankruptcy causes you to wait two years, for many it’s actually the fastest way to qualify for a home.
Some also feel that bankruptcy carries with it some social stigma. But there’s no shame in having to file for bankruptcy. The rules are designed to prevent people from taking advantage of the system. Consequently, the vast majority of people who file for bankruptcy are in dire need of help. Most bankruptcy filers have tried every other means to pay off their debts first, with bankruptcy being their last resort. And if COVID-19 is the reason for your financial woes, it’s doubtful anyone one would criticize you for trying to survive this brutal pandemic.