Filing Bankruptcy During the Coronavirus

The last thing anyone wants to do is to file for bankruptcy. Even though bankruptcy enables people to get a new financial fresh start, there are still some negative impacts that the process has on the filer’s credit score and their overall financial record. The current national financial crisis caused by the COVID-19 pandemic has become dire for many individuals and families, with unemployment levels soaring to levels this country has not experienced since the Great Depression. For many people, filing bankruptcy during the coronavirus may be the best option available.

In fact, so many people may be filing for bankruptcy during the COVID-19 pandemic that the government has made temporary changes to the U.S. Bankruptcy Code. In March, Congress passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act to address the economic crisis the COVID-19 pandemic is causing. The law provides more than $2 trillion in relief and is the largest stimulus aid package in the history of the United States. The Act provided some financial relief: $1,200 for individuals, $2,400 for married couples, and $500 for each dependent child.

The Act also provides additional unemployment benefits of up to $600 per week in addition to the benefit the individual receives each week from the state they live in. Despite these benefits, many people are still struggling financially. Anticipating the number of Americans who will need for filing for bankruptcy during the coronavirus crisis, the CARES Act also provides temporary changes to the U.S. Bankruptcy Code.

When a person files for bankruptcy, the bankruptcy trustee assigned to the case examines the filer’s assets and income to determine if they are eligible to file for bankruptcy. According to the stipulations outlined in the CARES Act, trustees cannot count either the stimulus payment or the additional unemployment payments as disposable income or current monthly income. These amounts can also not be used to determine if the person filing is able to pay their debt in a bankruptcy filing.

The Act also addresses current Chapter 13 filers with an existing repayment plan. They will be able to request modifications to the plan if they are having financial difficulties due to the COVID-19 pandemic. Your bankruptcy attorney can help you with the process needed to request these modifications.

Is Now the Right Time to File for Bankruptcy?

You may be wondering whether filing for bankruptcy during the Coronavirus pandemic is a good idea. After all, your financial situation may be unstable now but you may have high hopes that it will stabilize once the most pressing danger has passed. This is an understandable concern. However, it’s important to keep in mind that even after a vaccine becomes widely available, it will take a significant amount of time for the economy to recover from all the chaos that the nation has experienced since early 2020. As a result, your finances will likely remain unstable for some time. Unless you have a significant emergency fund built up that will last you for months on end, chances are that it might be a good idea to file for bankruptcy during the Coronavirus pandemic. The process of filing for bankruptcy allows families to stabilize their finances so that they can obtain a fresh start and move forward without having to worry about debilitating debt payments compromising their ability to meet their basic needs.

Chapter 7 vs. Chapter 13

If you choose to file for bankruptcy during the Coronavirus pandemic, you’ll want to speak with the experienced team at Arcadier, Biggie & Wood about whether it would be preferable for you to file for Chapter 7 bankruptcy or Chapter 13 bankruptcy. If you own a small business, you may want to consider filing for Chapter 11 bankruptcy. But if you’re filing as a single adult or as a married couple, you’ll almost certainly be choosing between Chapter 7 and Chapter 13 bankruptcy.

Only certain filers are eligible to file for bankruptcy under Chapter 7 of the Bankruptcy Code. Essentially, Chapter 7 filers must meet income thresholds that help to prove that they won’t be in a position to repay their eligible debts any time soon. By contrast, Chapter 13 filers are generally in a position to repay their debts once their debt payments are restructured and made more manageable. Whereas Chapter 13 filers repay some or all of their debts over a 3-5 year repayment period, Chapter 7 filers have their debts eliminated by the court in as little as 90 days. The primary downside to filing for Chapter 7 bankruptcy is that the trustee assigned to the case is empowered to sell a filer’s non-exempt assets to repay creditors. With that said, most low-income filers don’t have a lot of non-exempt property that is eligible to be seized by their trustee.   

Tips for Surviving Bankruptcy During the Coronavirus

Filing for bankruptcy is stressful at any time. When you’re filing it during a pandemic, it can be that much more nerve-wracking. Here are some helpful tips for filing for bankruptcy during the coronavirus.

• Adjust Your Budget: Filing for bankruptcy isn’t inexpensive, especially if you’ve lost your job due to the coronavirus. That’s why it’s essential to make changes to your budget as soon as possible. Make a list of your current expenses and think about what you can realistically cut out. For example, if you go out to dinner quite often, think about cooking more meals at home. Instead of paying for a gym membership, work out to YouTube videos in your living room.
• Avoid Acquiring New Debt: If you’ve been out of work for a while because of coronavirus, you might have to put off buying clothes, making renovations to your home or making other purchases. Don’t be tempted to put these purchases on a credit card and hope that bankruptcy will discharge them. If you rack up new debt right before you file for bankruptcy, you will still be responsible for repaying it.
• Don’t Transfer Your Assets: If you’re filing for bankruptcy during the coronavirus, you might be thinking about transferring some of your assets to family members. However, you can’t hide assets in bankruptcy. A judge will frown upon you transferring assets and may deny your bankruptcy petition.
• Do Your Mandatory Credit Counseling: Before you can get your bankruptcy approved, you have to complete credit counseling courses. These can take a while to complete, so don’t put them off to the last minute.
• Don’t Repay Family and Friends: If you lost your job due to the coronavirus, you may have been struggling financially these past few months. You might have asked to borrow money from family and friends to pay your mortgage, groceries, and other expenses. While you might want to pay them back as soon as possible, you shouldn’t do it during your bankruptcy. If your creditors find out if you paid back your friends and family and not your credit cards, they might try to make you pay back your loans.
• Maintain Constant Communication With Your Lawyer: When you are filing for bankruptcy during the coronavirus, you should speak to your lawyer on a regular basis. Filing for bankruptcy is a big deal and you don’t want to be kept in the dark about anything. Call your lawyer for updates once a week. Even if there is nothing new in your case, it will still give you peace of mind to speak with your lawyer.

Saving Your Home from Foreclosure

Although millions of Americans are receiving the COVID-19 vaccine every day, the virus is still wreaking havoc across the country. Just as the numbers of people affected by the virus begin to come down, a new variant appears, and the numbers rise again. This continues to affect people’s financial situation, and many have considered filing bankruptcy during the Coronavirus pandemic. Although the government has made many provisions to help people facing financial hardships, the question remains what happens when these protections are finally lifted.

One of the real concerns for homeowners is what will happen to their homes. Many homeowners have fallen behind on mortgage payments due to the pandemic and have no idea how they will eventually catch up. If your bank or mortgage company threatens foreclosure, Chapter 13 bankruptcy may be your best option. The following are some of the ways Chapter 13 will help save your home.

Automatic Stay

The moment you file your voluntary petition, an automatic stay goes into effect. No creditor can take any adverse action against you. So, no foreclosure sale can go forward without special permission from the bankruptcy judge.

The stay applies regardless of the collection stage you are in. It does not matter if the bank is calling every day demanding money, your property is in pre-foreclosure, or a sale date is scheduled for the next day.

Extended Repayment

Whether you are a few hundred dollars behind or a few thousand dollars behind, you have either three or five years to catch up. You propose the repayment schedule, and, in most circumstances, the bank must accept the terms you offer. All this time, the automatic stay remains in effect.

Loan Modification

It is nearly impossible to get a loan modification outside of bankruptcy and without an attorney. The lender often looks for ways to disqualify the application – a handful of missing documents, missing a deadline by a few days, or an income that is a few dollars too low – as opposed to looking for ways to help.

When filing bankruptcy during the coronavirus, it is a different story. If the judge orders the matter to mediation, as is often the case, the bank must negotiate in good faith. That means no denials based on technicalities. Moreover, when your attorney speaks to their attorney, things tend to get done faster.

Considering Filing for Bankruptcy? We Can Help

While the thought of filing for bankruptcy can be overwhelming for some people, it is often the best option. The legal team at Arcadier, Biggie & Wood, PLLC. We can schedule a confidential consultation with one of our attorneys to discuss filing for bankruptcy during the coronavirus crisis. Call our office today to see what legal options you may have