If you were thinking of filing for bankruptcy before the coronavirus emergency, you may wonder whether you should still do it. The timing of bankruptcy filings can be crucial for consumers who file, and it can have a big effect on what money and other assets the debtor can keep when filing.
Most states, as well as the federal government, have specific exemption amounts for assets that you want to keep even though you are filing bankruptcy.
For example, In Illinois you can keep up to $4,000 that is in a bank account under what is called the “wild card exemption”. Also, you can keep up to $2,400 in equity on any vehicle that you own. For example, if you are expecting a tax refund, the wild card exemption can be used to protect it from creditors.
Because the timing of a bankruptcy matters in how it relates to potential exemptions, there are a couple of factors you should consider.
First, do you have a way out of debt after filing for bankruptcy? If you will continue to accrue debt after bankruptcy, it probably makes sense to hold off since you won’t get the “fresh start” that you are looking for.
If you have just become unemployed, you should consider waiting until you have a new job, since filing bankruptcy and getting new debts while sustaining yourself isn’t a great strategy. It would be especially unfortunate if you were to declare bankruptcy and have your previous debts wiped out only to have to go into additional credit card debt because you don’t have a source of income.
Even if you have judgments against you, creditors cannot garnish public benefits like unemployment payments, social security or food stamps. If public benefits are your only income, you may not need to file bankruptcy to protect your income, since your creditors cannot get to it.
If you do not have any substantial assets and the only income that you receive is from protected sources like unemployment insurance, Social Security disability benefits, or certain pension funds, you’re what is called “collection proof”, which means that even if you have judgments against you the debt collector will not be able to obtain any money from you because your income and assets cannot be garnished.
If you have ongoing medical expenses, bankruptcy might not help much either since they will continue to accrue after bankruptcy discharge.
The recently passed government stimulus program is also offering $1,200 per adult with income under $75,000 per year and $500 per child. This cannot be garnished by creditors and is exempt from bankruptcy, meaning that if you have filed bankruptcy, you will still receive the payment.
While there are a number of factors to consider when determining when and if to file bankruptcy, now more than ever is a time to pay special attention since there are numerous portions of the federal stimulus bill that may govern when and if filing bankruptcy now is a good idea.