Mounting debt can make it difficult to take control of finances when you have a reduced income or no income at all.  Here are some tips if you are short this month due to the pandemic.

1.  Prioritize bills.  You need to pay for food, utilities, car insurance, health insurance, mortgage and rent.  The credit card bills can either get the minimum or nothing at all. 
2. If you have good credit and have a home with equity, it may make sense to get an equity line to help out if things get rough the next few months.
3. Talk to your creditors if you cannot make the payments. They may have new programs to assist you.  Most mortgage companies are deferring payments for 3 months and then want a lump sum in month 4.  Mighty nice of them, but who will have the lump sum in 4 months.  Take them up on the deferred payments.   Chances are  they will have some other assistance down the road or worst case a Chapter 13 case will give you 5 years to catch up. 
4. Try to stay positive and do not let any of the creditors make you feel bad.  This pandemic is unprecedented.  Focus on your health and your families health.  Most creditors can weather the storm just fine.  You may not if they insist you pay when you cannot.   

A scenario that is last resort may be bankruptcy. To understand whether this is the path you should take, below are reasons people file for bankruptcy, different options, and effects.  

A Guide to Bankruptcy 

Why Someone Would File for Bankruptcy

People often file for bankruptcy when it will take five years or longer to repay debts. This is often the case when earnings aren’t high enough to cover the expenses with money left for living costs. The financial strain could stem from student loans, mortgage payments, car loans, and credit card bills. Filing for bankruptcy can delay home foreclosures (currently foreclosures are on hold in Maryland) and put an automatic stay on creditors taking actions against you to collect debts. 

How Chapter 7 & 13 Differ

The type of debt you owe determines how you should file. People with a steady source of income and adequate income file for Chapter 13. The earnings are used to pay back some of the debt. Three to five years are given to repay debts. You must submit a detailed report on how you plan to get out of debt during the specified time.

Chapter 7 is liquidation which will discharge most debt (taxes and student loans are generally not discharged).  You get to protect assets up to a certain amount.  The debtor usually does not pay any debt back and usually keeps most, if not all, assets.  

How Filing Affects You

Bankruptcy should be avoided if possible, but sometimes it make sense.  Regardless of whether you file for Chapter 7 or 13 bankruptcy, it will stay on your record for a specific length of time. The filing typically remains on credit reports for seven to 10 years. This could affect your ability to secure future credit. Some of your assets might need to be sold off or repossessed to repay what you owe. These, however, are small prices to pay for the ability to get out of overwhelming debt.

For a better understanding of your debt-relief options, reach out to the Law Offices of Frank E. Turney, P.A., in Catonsville, MD. Since 1992, the bankruptcy attorneys have been helping clients throughout Baltimore County put an end to frustrating calls from collection agencies and begin to live debt-free lives. To schedule a consultation, call (410) 788-­8830. Visit the lawyers online to learn about changes in bankruptcy laws.