There’s no question that the COVID-19 pandemic has changed the landscape for many when it comes to personal finances. Suppose you’ve lost your life savings or accumulated debt due to COVID-19 job loss and closures. In that case, bankruptcy lawyers may be your best bet for getting clear. The right legal representation can also help you navigate the bankruptcy process. They can also help you find potential exemptions due to COVID-19.
In this post, we’ll look at the process of filing for bankruptcy. We’ll also look at the pandemic’s effects on personal finances and what you need to know if you’re considering filing for bankruptcy.
COVID-19 effects on personal finance
With widespread job loss, business closures, and massive shutdowns due to COVID-19, many financial advisors expected to see a rise in bankruptcies in 2021 and 2022. Surprisingly, the rates for personal bankruptcy actually fell 29% in 2021 compared to 2020. This drop in bankruptcy filings could be due to several factors, including:
- Government support: The Government helped keep money in people’s pockets through increased unemployment benefits and stimulus checks. Congress also passed the COVID-19 Bankruptcy Relief Extension Act of 2021, which gave relief to people in debt due to COVID-19.
- Eviction bans and foreclosure moratoriums: People may not be paying their rent or mortgage payments. Still, no one is foreclosing on them just yet.
- Federal student loan payment freeze.
- State court closures: There’s currently a backlog of cases in the court which can make getting a judgment on a claim very challenging.
Most of these supports and stimulus measures will end soon or have already finished as of 2021. They may only be postponing an inevitable financial reckoning and a rise in bankruptcy rates. If you’re facing debt you can’t pay, working with bankruptcy lawyers and filing for bankruptcy may be an option.
What to know about bankruptcy (if you seek it)
COVID-19 created unprecedented challenges. Many people lost their jobs and their businesses and are struggling with debt. Bankruptcy can offer relief from debt and provide a fresh start. Before you start googling “bankruptcy lawyers near me,” there are some essential things you need to know.
Pros of bankruptcy
- Bankruptcy can help eliminate or reduce your debt if you’re in a situation where you can’t manage your payments.
- It stops creditors from harassing you and keeps them from repossessing items like your car or taking your home.
- It stops wage garnishment.
- It can give you a fresh financial start.
Cons of bankruptcy
- Filing for bankruptcy can affect your credit record for many years, even up to a decade. This low credit rating can prevent you from getting loans or buying a home.
- Bankruptcy is part of a public record that can be seen by banks, employers, and insurance companies.
- Bankruptcy makes it challenging to qualify for a loan, or you may need to pay very high-interest rates for several years.
Different types of bankruptcy
A bankruptcy lawyer can give you the best advice and help you navigate the bankruptcy process. Bankruptcy is a serious event, and it’s essential you understand the consequences of filing. There are potential COVID-19 exemptions available when filing for bankruptcy. Understanding these can help your eligibility. Your bankruptcy lawyer can advise you on the most up-to-date information and exemptions.
Chapter 7 bankruptcy will eliminate most of your unsecured debt — that is, credit card, personal loans, medical bills, and utility bills. It doesn’t get rid of child support payments, student loans, alimony, or other secured debts.
In Chapter 7, you can keep some of your essential assets (like a car you use for work or your home). You may need to sell some of your non-exempt assets to pay your debt. To file, you need to pass a means test to show that your average monthly income is less than the median income for a similarly sized household in your state.
If you file for Chapter 7 bankruptcy, COVID-19 stimulus checks and other federal payments don’t count as income and won’t affect your eligibility.
Chapter 11 bankruptcy is usually for businesses. It allows business owners to restructure their company so they can hold on to their assets and stay in operation. Under Chapter 11, companies can propose a plan to repay their debts, such as downsizing or renegotiating debts. Their creditors have to agree to this plan to proceed.
Chapter 13 bankruptcy is sometimes called the Wage Earner’s Bankruptcy. It allows you to create a plan to pay back your debts in a manageable amount over time. You must be able to make the payments and have a regular income.
As part of the federal CARES Act, you can extend the length of your Chapter 13 repayment plan up to seven years. To qualify, you need to show financial hardship due to COVID-19. The federal stimulus for COVID-19 also doesn’t count as disposable income under Chapter 13.
Tips for searching “the best bankruptcy lawyers near me”
If you’re looking for experienced and trustworthy bankruptcy lawyers, contact LegalASAP today. We can connect you with our network of bankruptcy lawyers near you who can review your case and help you find the best way forward. Take our free evaluation to see if you may qualify. Get connected with qualified legal representation in your area today.