The world is in the middle of a pandemic. You are being bombarded with information, options, and opportunists trying to get you to patronize them. You need some facts to help make good decisions right now and that will be right for you when we open for commerce again. I have been practicing bankruptcy law for nearly 20 years.
I have seen the 2005 law change mass filings, the 2008 real estate crisis filings and am anticipating filings as a result of the economic disaster looming when we all get healthy again. Having had experience in these types of crisis situations, I can give you some tips to weather the current storm.
Let’s talk about the CARE Act and some alternatives offered there for small businesses and sole proprietors.
The first offering is PPL, a payroll-based loan that can provide operating expenses for up to 2 months. The loan is based upon your payroll expenses over the past 12 months. You can borrow up to 2.5 times the actual payroll expenses. That loan may only be used for payroll. rent, utilities and some debt service payments. All or part of the loan will be forgiven if the borrower meets certain criteria.
Disaster Relief Loan
The second offering is a disaster relief loan backed by the SBA. The SBA is forgoing the collateralization of this loan and capping the interest rate at 4% for up to a 30-year term.
Penalty-Free Withdrawal from 401K
- Third, and a firm “no” as far as I am concerned, is a penalty-free withdrawal from your 401k, as you can pay the taxes on the withdrawal over the next 3 years.
- This option is bad on many levels:
- Depletion of your retirement savings and no rebound increase when the markets gain and
- You are removing money that can only be attached by the federal government and giving it to your creditors who otherwise could not touch it, 3) the tax obligation on the funds withdrawn is not dischargeable in bankruptcy but the debt you would pay with it is.
These are some aspects of the CARE Act. Some are more beneficial than most. Proceed with caution and professional advice as you navigate provisions that may in fact be too good to be true.
The State of Ohio and many other states have put a moratorium on all or certain foreclosures. In Lake County Ohio, there is a 60-day moratorium on foreclosure proceedings and Sheriff sales. It is important to check your local jurisdiction or seek professional legal guidance.
Some Municipal Courts have put a moratorium on eviction proceedings. In Lake County, all Municipal Courts, except Mentor, have such a provision in place.
The Federal Courts are still functioning. That means that you can still seek bankruptcy relief during the quarantine period. This option can remove your debts like credit cards, expensive car payments, back rent (from an eviction), medical bills and other debts. You can then protect your retirement, any funds coming in and your pay when you are able to get back to work.
It is important that you seek professional legal help to determine the best chapter of bankruptcy (7 or 13) and the timing of the filing to best protect you and your family. If you are afraid you cannot recover from the loss of wages, then it is time to seek real help, not just a band-aid of retirement account withdrawals or government stimulus checks.