If there is even a risk of bankruptcy in your future, here is what to do now

The coronavirus pandemic that has shaken the economy is also expected to send an unprecedented number of individuals and businesses to bankruptcy court. Millions of people are unemployed and economic disruption could continue until a vaccine is widely available, which could last more than a year.

"I'm preparing to have a tsunami of new cases," said Jenny Doling, bankruptcy lawyer in Palm Desert, California, who sits on the Chapter 13 Advisory Committee for the American Bankruptcy Institute. "I think there will be many more people presenting than anyone who has ever seen before."

Yes bankruptcy It may be in your future, this is what you should know now.

Don't wait to speak to a bankruptcy lawyer.

It is generally advisable for people to resolve their debt problems themselves, if they can, or to consult a credit counselor, 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, says Doling. You can get references from National Association of Consumer Bankruptcy Lawyers

and the first meeting is usually free.

"If you even think there is a possibility that you are having debt problems or that you cannot afford something, get a free consultation before taking any financial action," says Doling.

However, that doesn't mean you should be quick to file a statement, says John Rao, a lawyer at the National Center for Consumer Law. Your situation could improve or things could get worse. Because Chapter 7 Liquidation Bankruptcies

It can only be presented every eight years, it is recommended to do so when you can clear the maximum amount of debt.

Don't touch your retirement money

Here is a tip that precedes the pandemic: it has never been a good idea to loot your retirement funds. It is a bad idea if bankruptcy could happen in your future.

New withdrawals due to coronavirus problems Allow individuals to take up to $ 100,000 from their 401 (k) or individual retirement account without penalty or mandatory hold. Withdrawals are taxable, but people who can return the money within three years can modify their tax returns to get these taxes refunded.

Watch: How to manage your financial health during the COVID-19 pandemic

But few people in financial crisis will now be able to repay the money, predicts Doling. Most importantly, money in retirement funds is generally protected from creditors and therefore should not be used to pay debts that could be cleared in bankruptcy, such as credit cards and medical bills.

Don't let the money accumulate

A cash reserve is important, but money from bank accounts can be confiscated to pay creditors. Your lawyer will tell you where to put the extra money. An option can be a Roth IRA. Any amount you contribute can be withdrawn tax-free at any time and, in the meantime, it is protected from creditors.

Don't sell anything

People are often advised to sell unnecessary goods to pay what they owe. However, if bankruptcy is in your future, consult a lawyer first, as the sale may be unnecessary or may be necessary later.

"After bankruptcy, if you needed to pay the rent, you can sell it," says Doling.

Also, don't donate assets, because a bankruptcy administrator, the person who manages your bankruptcy case, could sue the beneficiary to get it back, says Kate Nicholson, bankruptcy attorney in Cambridge, Massachusetts.

Don't let tolerance options go by

Due to the crisis, many lenders allow borrowers to skip certain payments. The usual advice is to take advantage of this patience only if you really need it, because the debt will always have to be paid.

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But credit card debt and most other unsecured debt would be written off in Chapter 7 bankruptcy, which is the type of file that most consumers file. Secured debts, like mortgages and car loans, are generally not cleared, but tolerance can help you save money for other needs, including food, utilities and payment from your bankruptcy lawyer. (A Chapter 7 deposit usually costs about $ 1,500, and Chapter 13 deposits cost $ 3,000 and more.)

"(Tolerance) is a great wait-and-see approach, so you're not paying out of pocket right now," says Doling. "You can see what's going to happen with your work, with your spouse's work, your situation."

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