THERE have been increasing talks recently about making needed changes under the Bankruptcy Code to protect families and business owners who are suffering during this pandemic. While the government has made limited efforts to alleviate the hardship experienced by millions of people with the recent stimulus payments, loan forbearances, the Paycheck Protection Program (PPP) and other relief measures, they are still insufficient to help families and business affected by the virus to attain meaningful financial recovery.
Thanks to our California legislators. Last week, Governor Newsom signed AB-1885 into law which significantly increased the homestead exemption amounts which had been outdated for quite some time. The homestead exemption laws allow you to protect equity in your primary residence from creditors. Before the law passed, the lowest amount was $75,000 for a single person and the highest amount was only $175,000 for homeowners aged 65 and older or disabled. Under the new law which goes into effect January 1, 2021, it will be anywhere from $300,000 – $600,000. What this means for you is that if you have been previously precluded from filing bankruptcy for fear of losing your home by having too much equity in your home, the higher homestead exemption amounts may now allow you to be able to file bankruptcy without worrying about losing what could be your most valuable asset.
Without being able to obtain debt relief through bankruptcy, many who have lost their jobs, or their businesses, can forever be buried in debt that they cannot repay. In the end, America loses out because people who are insolvent will not be returning soon to earning, spending, and investing- which is what our country needs to recover. So, without the remedies allowed by our bankruptcy laws, the whole country suffers eventually. Tens of millions of people have lost their jobs while companies, big and small, have closed their doors. This cannot continue if we want our economy to start moving again.
I get calls from people asking me whether they should cash out their retirement plans, 401K’s and IRA’s, to pay their debts while “waiting to see what happens” in the next few months. While in some cases there are valid reasons to wait before filing bankruptcy, I personally think it’s crazy to use your IRA or 401(k) if bankruptcy will wipe out your debts anyway. Why? Because IRA’s and 401(k)’s are fully exempt in bankruptcy and are beyond the reach of creditors. If you can file bankruptcy to wipe out your debts, why take your hard-earned life savings to pay your debts at this time especially when you don’t even know how your financial hardship will last in these uncertain times? If anything, you should keep your retirement plan intact because that might be the only thing you have left if you’ve exhausted and depleted all other savings up to this point.
Another question that has also come up lately is whether it makes sense to refinance your mortgage to cash out and pay creditors. Well, if you are filing Chapter 7, all your unsecured debt (with a few exceptions like student loans and taxes as examples) goes away. With the now generous homestead amounts available under the new law, equity in your residence is most likely not going to be an issue anymore if you file bankruptcy. So, why increase your mortgage debt unnecessarily especially if you’ve already been paying for so many years? Do you really want to start over with a 30-year mortgage again and spend all those closings costs? From experience, I’ve seen many homeowners cash out their equity only to regret it later after the money is all gone, and the debts are back up again where they were before the refinancing. It happens all the time.
Almost 100% of my bankruptcy cases are “no asset” cases, which means that my clients lose nothing but their debts. If the pandemic is pushing you to file bankruptcy as a last option, you SHOULD definitely look into it as a possible way to survive this pandemic. I know that this is probably the last thing that you ever want to do and if you’ve never done it before, you’ve probably never thought that you would even be in this situation to actually consider it.
The purpose of bankruptcy is to help you when you can no longer help yourself. The current pandemic has been a nationwide disaster that you have no control over, and it may take some time before our economy goes back to normal. Bankruptcy can give you that lifeline that you need to survive during this very difficult time. Again, you should at least know what your legal options are.
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NOTE: Due to the current lockdown order caused by COVID-19, I am offering free consultations BY PHONE to anyone who needs help in dealing with their debt problems.
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None of the information herein is intended to give legal advice for any specific situation. Atty. Ray Bulaon has successfully helped over 5,000 clients in getting out of debt. For a free attorney evaluation of your situation, please call RJB Law Offices at TOLL FREE 1-866-477-7772.