The pandemic has been brutal for many people and businesses. And, of course, it only made things worse for those who were already struggling.
So, to combat the economic downturn, governments worldwide offered stimulus packages to help support those in need. For some, it provided some needed relief, but for many individuals and businesses, it was a life preserver.
The problem? Many of those funds are starting to run out, leaving people wondering what comes next. And as a result, experts predict a surge in bankruptcies in the coming months.
Bankruptcy filings are already on the rise
According to Epiq Global, new bankruptcy filings for January have increased year-over-year by 18.3 percent. While some may see this as a “minor uptick,” it should be noted that January 2022 saw a similar increase from the previous year. Therefore, logic suggests that this is a trend that could continue throughout the year.
Businesses are particularly vulnerable, as the pandemic hit many industries hard, and recovery has been slow for many. The hospitality and tourism sectors, for example, were hit particularly hard. Even with government aid, many businesses have been forced to take on additional debt to keep their doors open. And when the stimulus runs out? Those same businesses will be left with large amounts of debt, reduced income, and few recovery options.
But individuals are still feeling the pinch, too. While some have been able to save money due to reduced spending, others have found themselves in a precarious financial position. Large segments of the population could not work full- or part-time hours due to lockdowns, while others were laid off. And, same as with businesses, it’s becoming harder for people to make ends meet without the stimulus money.
What to do if you’re struggling
Waiting until you’re drowning in debt will only worsen things, so you should take action as soon as possible. Here are some steps you can take to get back on track:
- Create a budget: Determine exactly how much money you have coming in and going out. This will help you identify areas to cut back.
- Prioritize debts: When listing all the debts you owe, include interest rates and minimum payments. From there, prioritize them based on which ones are most urgent.
- Contact creditors: Contact your creditors and see if you can work out a payment plan if you’re having trouble making payments. Most of the time, lenders are willing to work with you if you’re upfront about your situation. After all, they ultimately want to collect the money you owe them!
- Consider bankruptcy: Bankruptcy is not something to be taken lightly, but it can be a way to get a fresh start if you’re drowning in debt. Consider talking to a bankruptcy attorney to see if it’s an option you should consider.
What to do if you’re a business owner
The steps you take are different if you’re a business owner. Some things to consider include the following:
- Assess your financial situation: Take a hard look at your financials and figure out your debt versus how much income you can expect to bring in.
- Consider restructuring: Consider a debt restructuring plan, as you can negotiate with creditors and develop a more manageable payment plan.
- Explore government aid: Additional government aid may be available to help support your business. Consider contacting your local government or small business association to see available resources.
- Talk to a bankruptcy attorney: See above – an attorney also might be aware of potential government aid options. They can also help you assess your options and determine if bankruptcy is right.
Preparing for the future
Maybe your business didn’t suffer as much during the pandemic – you might have even seen an uptick in sales or money coming in! Still, it’s always a good idea to be prepared for the future.
You’ve seen the damage that can be done when disaster strikes – here are some things you can do to help protect yourself in case of future financial difficulty:
- Build an emergency fund: An emergency fund can help you weather unexpected expenses or loss of income. Experts say to aim for at least three to six months’ expenses for your emergency fund.
- Diversify!: If you rely solely or primarily on one source of income, then you’re vulnerable to changes in the market and with that income stream. It may be time to consider diversifying your income – you never know if or when your “pivot” could become your new primary source of income.
- Seek out professional advice: Need help managing your finances? A financial advisor can help you assess your situation and develop a plan that works for you.
It’s not time to panic; instead, it’s time to prepare
While government aid has helped support those in need, the end of those programs is on the horizon – hence why bankruptcies are predicted to rise. That’s why taking action before the problem becomes unmanageable is vitally important. Connect with us at the Van Horn Law Group and receive a free consultation if you need help determining your options.