People of all backgrounds can agree on one thing: 2020 has been a wild year. So let’s take a break! Sit down for a minute, relax, and allow us to talk to you about… bankruptcy.
If you just got a little sick to your stomach, you’re not alone.
For many people, the idea of filing for bankruptcy is terrifying. In fact, the perception that bankruptcy is something to be avoided at all costs keeps many people from understanding how bankruptcy works – and when and how this legal process can benefit them.
We’re here to clear that up, and to dispel some of the myths about bankruptcy along the way.
Legally speaking, you can file for bankruptcy if your liabilities exceed your assets.
Fate, as the saying goes, is a cruel mistress. Bankruptcy proceedings are the way in which our society accounts for the fact that divorce, natural disaster, or unexpected economic upheaval can have a huge and sudden impact on financial standing. In fact, bankruptcy is so important that the US Constitution explicitly grants Congress the right to make laws regarding its procedure.
In Good Company
Bankruptcy is more common than you might think. For the past five years, almost one million individuals and 500,000 businesses have filed for bankruptcy annually.
And bankruptcy filing isn’t just for small businesses, either. You’ll recognize some names: J. Crew, Neiman Marcus, Frontier Communications, and Hertz Car Rental are just a few of the billion-dollar companies to have filed for in the last six months.
But it sounds so bad!
So if filing for bankruptcy is both beneficial and common, then why does it sound scary?
The answer is that, for most of us, money is an emotional thing. This can make it difficult to make rational decisions about our finances. Even if filing for bankruptcy is in our best interest, we might avoid the decision because it feels bad.
Luckily, the solution to this is a simple mantra: money is a tool.
It’s kind of magic. Once you start to understand money as a tool used to run a business or a household, everything else falls into place. If money is a tool, then bankruptcy is another tool that helps you manage it. Suddenly it becomes much easier to make the decision.
Did somebody say pandemic?
If your ears pricked up at the sound of unexpected economic upheaval, we’re right there with you. The COVID-19 pandemic is the exact type of situation for which bankruptcy laws exist. Some businesses have experienced massive losses as a result of the pandemic, and filing for bankruptcy can allow individuals and business owners to start over without the burden of debt.
Filing can help you stay in your home and reduce your debts. And, although filing for bankruptcy does affect your credit score, the reduction in credit score isn’t permanent. In fact, most people’s credit scores return to normal within seven to ten years.
A Fresh Start
Really, filing for bankruptcy is about starting over in whatever way makes the most sense for you. While one common misconception is that bankruptcy signals the end of a business, this isn’t necessarily the case. Making a strategic decision about when and whether to file is all about knowing what best serves your long-term goals.
For some business owners, filing for bankruptcy might make sense even if you do hope to return to your business in the long run. Rather than dipping into your retirement accounts to pay operating costs, you can make the smart decision to close or restructure your business and have a conversation with your financial advisor about how to reopen under the conditions that are most conducive to success.
When to file for bankruptcy?
When filing for bankruptcy, it is important to enlist the help of your financial advisor and from a lawyer specializing in bankruptcy law. Your team can help you decide whether or not filing is in your best interest. If you decide to file, a lawyer can support you through the process.
If you have questions about bankruptcy law, call Shann M. Chaudhry, Esq., Attorney at Law, PLLC to schedule a consultation. Our experienced Texas estate planning attorneys can guide you through the process. Contact us at (210) 646-9400 to schedule an appointment.