It is estimated that 22 million Americans have filed unemployment as a result of COVID-19. For many, that has caused mass panic as they begin to worry about how they will pay bills, make loan payments, keep their homes or make rent, and support their families. For some, bankruptcy has its perks, but there are things to consider when you want to file bankruptcy during COVID-19.
Consider Your Financial Options
While bankruptcy may seem like your best option, know that it isn’t for everyone, especially if you are only now falling behind on payments. For those in financial hardship right now, you have more or less three choices to consider:
- Make the minimum payments on your bills for as long as possible
- Negotiate with your lenders and creditors
- File for bankruptcy
It’s important to note that many banks and credit card companies are offering financial services during COVID-19 so you can stay afloat. Contact your creditors to see what options may be available for you.
Review Your Options From CARES Act Relief
If you have lost your job as a result of COVID-19, you are entitled to unemployment benefits. You’ll need to review your state’s specific rules and regulations, however.
In addition to unemployment, you may have received a stimulus check as part of your relief package. If you have not yet received a COVID-19 stimulus payment, you can visit the IRS website to see the status of your check and if you will receive one.
In general, you qualify for relief if you meet the following criteria:
You likely qualify for an economic impact payment if:
- You have a Social Security number
- You have filed taxes in 2018 or 2019
- You don’t earn enough to file but receive Social Security payments
- You earned less than $99,000 for single filers, $136,500 for heads of household, or $198,000 for married filers according to the most recent tax return filed
For college students, it is important to know that if you have been listed as a dependent on your parent’s tax filings, you most likely will not receive a payment. However, check the IRS website to be sure.
Stimulus Checks and Debt
The stimulus checks provided are supposed to help the American economy and workers during this uneasy time. However, that doesn’t necessarily mean your check is yours to keep.
Right now, Congress has not yet made stimulus payments from the CARES Act exempt from private debt collection. This means that if you hold debt from private creditors, they can pull the money right from your account to pay loans or late fees.
However, if you owe debts to federal or state agencies, your money is safe and exempt from these parties; the stimulus payments must go to immediate economic needs, which does not include federally owed money.
But, even with stimulus payments and increases to unemployment, what if you still need to file bankruptcy?
Filing Bankruptcy During COVID-19 Crisis
After reviewing your finances, you may find that even with the relief being provided, bankruptcy is still needed. We’re here to help.
You first will need to look at your debts and assets to determine if Chapter 7 or Chapter 13 bankruptcy is right for you.
Chapter 7 bankruptcy typically removes your unsecured debts such as credit cards and medical bills without the need to pay back balances. Upon filing for Chapter 7, creditors will stop pursuing collection efforts.
To qualify for Chapter 7 bankruptcy, you must meet the following criteria:
- Your debts are more than half your annual income
- It would take five years (or more) to pay off your debt even with extreme action
- Your debt interferes with other essential aspects of your life
- You have little to no disposable income
- Your monthly income is below the median level in your state
In comparison, Chapter 13 bankruptcy works to reorganize your debts so you can do monthly payments to work through them via a repayment plan. In this type of bankruptcy, you are able to keep all of your property, but you must repay creditors.
To qualify for Chapter 13 bankruptcy, you:
- Make too much money for Chapter 7 but need debt relief
- Have nondischargeable debts such as alimony or child support you need to pay
- Have fallen behind on a house or car payment and want to get caught up while keeping the property
There are benefits and drawbacks to both, but it’s important to know that bankruptcy is not the end of your financial life–it will not stay with you forever. Instead, it gives you a chance to restart or catch up.
Now, if you already have claimed bankruptcy, you’ll need to check state regulations on when you can file again.
However, if you are in the midst of Chapter 13 repayments, and you are falling behind, you may need a modification to your repayment plan.
Bankruptcy Payment Plan Modifications
If you are falling behind on your payments, you may need to modify your plan. There are many reasons why you can, including:
- Job loss or reduction in income
- Increased expenses
To modify your plan, you will need a court petition to begin. Though many courts are physically closed, they are most likely taking hearings over the phone. Upon submitting your modification plan, you must show the change in income and the inability to pay due to COVID-19.
Be sure to include documentation like, a notice of lay-offs, childcare costs, etc.
If a modification is not granted, you may qualify for a Chapter 13 Hardship Discharge. A Chapter 13 Hardship Discharge is a court granted discharge of some payments. You must petition the court to receive this and prove:
- You could not meet payments because of circumstances outside of your control
- Unsecured creditors have received as much money from you as they would have under a Chapter 7 bankruptcy
- A modification plan is not feasible
Remember, this does not remove all debts. You are still responsible for secured debts, student loans, etc.
I’m falling behind on my payments and I can’t catch up. I need a bankruptcy attorney.
We know how stressful things are right now. If you are falling behind on payments and need legal and financial advice, contact us. We are working with bankruptcy attorneys across the country who can walk you through the bankruptcy process, see what options are available to you and help restart your financial situation during COVID-19.