As the coronavirus emergency begins to lessen and restrictions ease, many people are finding it harder and harder to make ends meet. Even with the one-time stimulus check and the additional $600 weekly stipend for those people on unemployment times are tough. With most states under some degree of lockdown, bankruptcy filings have fallen dramatically, but are expected to rise quickly after states begin to open up again. A backlog of the usual number is expected to resume along with many more new filings because of financial problems exacerbated by the coronavirus. For many people who were struggling before the pandemic, the last few months have been a financial nightmare.
Bankruptcy is not an “easy way out” of debt. It’s a serious step. Chapter 7 Bankruptcy may require liquidation of assets and Chapter 13 involves reorganizing your debt to include monthly payments that last typically from 3-5 years. Both will have a negative impact on your credit for years. But it can be a way out of the perpetually deepening hole of debt.
With Chapter 7, you have to take a means test which goes back the last 6 months and your income could disqualify you. But if you’ve been laid off recently sometimes you can overcome the disqualification due to your change in circumstance. To file Chapter 13, you have to be employed because you have to have the means to make monthly payments on all or a portion of your debt.
Because you can receive a discharge under Ch. 7 Bankruptcy every 8 years and Ch. 13 every 2, it’s important to make sure the timing is right. If you’re expecting large medical bills or you really don’t have a lot of debt, it may not be the right time. An experienced bankruptcy lawyer can advise you on whether or not you should file for bankruptcy now, or wait.
As part of the CARES Act, there have been changes to bankruptcy policy to account for the impact of COVID-19, two of the major ones for consumers are:
“Disposable income” will not include coronavirus-related payments for determining Chapter 13 repayment plans, nor will it be used to determine eligibility for either Chapter 7 or Chapter 13 bankruptcies.
If the debtor has experienced hardship due to COVID-19 and had a repayment plan already confirmed for Ch. 13 before March 27, 2020, that repayment plan can be renegotiated to go as long as 7 years instead of 5. This means monthly payments to creditors may be lowered to make them more affordable to the debtor.
The good news is that we’ve begun to flatten the curve, and as businesses begin the process of reopening safely, many will be hiring back employees that had been furloughed but in all likelihood, not everyone will get their jobs back. A high number of them may be let go permanently, and in an environment where many others are looking for employment, many people could be left struggling. Additionally, banks, credit card companies, landlords, and mortgage companies that have been allowing customers to defer payments will begin demanding them again.
If you are struggling financially due to COVID-19 and want to know if bankruptcy is right for you, call Miller, Hollander, & Jeda at (239)775-2000 for a free consultation and get the financial relief you need.