I’m nervous about having to declare bankruptcy or collect unemployment benefits.
We know that the COVID-19 pandemic still presents a serious financial hardship for many people. Although we’ve covered some of the benefits available to your family during this time, navigating them can be complicated. For example, bankruptcy and unemployment benefits are two financial mechanisms that carry particular stigmas. Even hearing the word “bankruptcy” may conjure thoughts of the neighborhood gossip whispering about your financial situation behind your back.
“Did you hear about the Andersons? I always knew they were hiding something!”
We get it. It’s common to feel ashamed about declaring bankruptcy or collecting unemployment. Some may associate these choices with a sense of failure or irresponsibility. But, before we go any further, remind yourself that these circumstances aren’t your fault. Even if you had emergency funds set aside, you probably didn’t anticipate that you might need those funds to last for months. And that’s okay!
So, now that we agree that sometimes bankruptcy and unemployment benefits are necessary, learning more about these financial mechanisms can help ease your anxiety. Here’s some quick information on how they each work, as well as how making these decisions now might impact you in the future.
What Do I Need to Know About Bankruptcy?
1. Declaring bankruptcy does NOT mean you’re penniless.
Bankruptcy simply means that your bills and expenses exceed your income, to the degree that you ultimately could end up completely broke. You may even think of bankruptcy as an “emergency brake” that helps halt your downward financial spiral before it’s too late. Having an income, valuable assets, and/or owning a home does not disqualify you from declaring bankruptcy.
2. If you’re married, you DON’T need to file for bankruptcy together.
In some marriages, one spouse may struggle with their personal debt and expenses while the other does not. In this case, a spouse can file individually, leaving their partner’s financial situation untouched. Keep in mind, though, that you may need to liquidate shared assets in order to repay your individual debts.
3. Bankruptcy hurts your credit score, but may be the best long-term.
The point of bankruptcy is to help you wipe the slate clean. While it does appear on your credit report, it also removes any and all interest, late fees, collection fees, and attorney fees. The important question is whether it’s better to accept the immediate dock on your credit score for the promise of long-lasting financial relief down the road.
What Do I Need to Know About Collecting Unemployment?
1. Anyone who is missing work due to COVID-19 is currently eligible.
Even if you still have a job but aren’t able to work (or are working reduced hours) due to COVID-19, you can apply for unemployment benefits. For example, if you’re on an involuntary leave of absence until your workplace can re-open, or you’re not able to go to work due to health concerns, you’re eligible to collect unemployment.
2. You can continue to collect benefits while working part-time.
Many newly unemployed Americans have taken part-time jobs in places like grocery stores or other essential businesses in order to get by. This does not disqualify you from receiving unemployment benefits. Your weekly benefit amount is based on your previous income. If your income from a part-time job is less than that amount, you can collect benefits to make up the difference.
NOTE: You might ask, “Then what’s the point of having a part-time job at all?” Well, each individual has a total annual benefit limit. If you rely completely on your benefits for income, you may find that you quickly hit this annual limit, leaving you without any benefits for the rest of the year.
3. You can apply for back-dated unemployment benefits.
If you did not realize you were eligible for unemployment benefits, you can still request payments from previous months. You may need to provide information that proves you were unable to work from the date of your first requested payment.
We hope these insights are helpful. We’d love to help you discuss your options and determine the best course of action for you and your family. If you’re struggling with financial stress due to COVID-19, and want to better understand your options, give us a call today. We’re here for you.