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Brunner Law April 17, 2020

In these uncertain times, it is very easy to become alarmed over financial issues that come up. First, take a deep breath and evaluate your situation. The most important thing is to set your priorities. Usually, these are keeping the roof over your head, food on the table, lights and heat on, car running and insurance.

Right now, many of these creditors understand that times are difficult and they are willing to work with you. The key is communication. There is a moratorium on utility shutoff for now. This moves them much farther down the list of necessary expenses on a limited income. This does not mean that you should not pay them if you can, and you will have to deal with payments not made in the future, but for now, if you have to skip a payment it is not the end of the world. Similarly, the mortgage companies and landlords are prevented from evicting you or foreclosing you out of your home. They know this and are usually willing to discuss reduced payments during the crisis. Again, once times get better, you will have to catch up but for now, you can stretch your budget a bit further.

The last thing you should worry about is the general unsecured creditors. Credit cards and medical bills are at the bottom of the list of things to be paid in tight times. They may call and sound threatening, but do not do things that will hurt you in the long run. One of the worst mistakes you can make is to tap into your retirement funds to pay these unsecured debts. Once you take money out of your IRA or 401K, it becomes taxable income to you. The IRS is generally not as forgiving as other creditors. By taking money out of your retirement accounts early, you are trading a credit card problem for a tax problem. That money is there for your future, and I know it is tempting to pull it out now but Don’t.

Once everything settles down and you are back to work, then you can begin to get back on track with your other creditors. There are many non-profit budget and credit counselors who for little or no fee will work with you to help you restore your credit. If they cannot help you work out of your situation, the last resort is to file a bankruptcy. That is where we can help.

While bankruptcy should never be your first choice, you should be aware that the decisions you make while in a panic, can put you in a position where a bankruptcy is less effective. A bankruptcy can effectively deal with missed credit card payments and past-due medical and utility bills. It is not effective to deal with taxes due to early withdrawals from retirement accounts.

Before making a decision which you may not be able to recover from, call and we will be happy to discuss your situation.