5 Things to Consider About Filing Bankruptcy in the Middle of Coronavirus


The coronavirus pandemic is spurring countless people to consider the merits of filing for bankruptcy.  After all, it is quite difficult to pay the rent/mortgage, a car note, student loans and credit card debt in the midst of a deadly virus outbreak.  The sad truth is more than one-third of Americans are in debt.  More than a million Americans file for bankruptcy every single year.  These declarations of financial destitution result from myriad reasons ranging from exorbitant medical bills to divorce, unemployment and the use of credit for life necessities due to the lack of a living wage.  

Let’s take a look at the top five considerations to ponder prior to declaring bankruptcy.

  1. Do Not Fall Into the Temptation of Tacking on Even More Debt

If the thought of bankruptcy has crossed your mind, you have likely wondered whether it is prudent to take out even more debt simply because you assume the majority, if not all, of your debt will be erased.  However, adding even more debt to the pile prior to filing for bankruptcy is a mistake.  Creditors can object to the request for bankruptcy if you add even more debt within two to three months prior to filing bankruptcy.  This new debt can be discharged as the creditor can argue it did not approve the loan knowing there was no intention to actually pay it back.

  1. Student Loans Must be Paid

Sadly, student loans are not dischargeable in bankruptcy unless they were taken out for a non-degree granting program.  This means your student loan debt is likely to linger beyond the date of bankruptcy filing, possibly until they are forgiven at the end of income based repayment (IBR).  In other words, it will take 20-25 years of IBR payments for your student loans to be forgiven.  The bankruptcy laws pertaining to student loans were changed in the 80’s as too many debtors were simply filing for bankruptcy to eliminate their student loans and start anew with a clean financial slate, albeit with a decreased credit score. 

So be sure to do your homework prior to filing for bankruptcy.  Take advantage of banks’ educational portals on the web to gauge if you are truly prepared to file for bankruptcy.

  1. Do Not Pay Off Creditors

Bankruptcy specialists advise against paying back creditors within three months of the bankruptcy filing date.  Avoid making payments in this period of time and you won’t have to worry about trying to get the money back.  However, if payments are made within the three months prior to declaring bankruptcy, you might qualify for a preferential transfer.  This transfer makes it easy to get money back from those you paid before declaring bankruptcy.

  1. Withdrawing Savings in the Form of Cash

You will undoubtedly be tempted to cash out the entirety of your savings so that money is not paid to creditors amidst the bankruptcy process.  However, if you are caught withdrawing this money, you will be criminally prosecuted.  Saving your assets today might seem important yet those assets won’t serve a purpose in the event you are convicted for this felonious act.

  1. Transferring Funds

Filing for bankruptcy spurs requests to provide information pertaining to assets currently held or assets soon to be held.  However, the average person is so nervous and afraid of the bankruptcy process that he or she is panicked to the point that it seems sensible to transfer or sell assets in order to get them out of his or her name.  The logic is as follows: selling assets prevents their loss amidst the bankruptcy process.  Though this might seem sensible, it is actually against the law to conceal assets prior to bankruptcy.  Such an action could lead to a denial of bankruptcy and also spurring criminal penalties to boot.

Be Patient as You Transition to a New Beginning

If you meet with a bankruptcy attorney or financial advisor and determine it makes sense to file for bankruptcy, do not delay the filing process.  If you delay the filing, you will undoubtedly run into even larger problems down the line.  Get it over and done with so you can transition to the next chapter of your life as soon as possible.