The bankruptcy process is available to both consumers as well as businesses that cannot pay their debts and want to find a way to regain control of financial obligations. Consumer bankruptcy often takes one of two forms. Chapter 7 bankruptcy involves the liquidation of a person’s non-exempt assets into funds that are used to pay creditors. Chapter 13 bankruptcy allows a debtor to create a repayment plan. The American Bankruptcy Institute reports that there are many more consumer bankruptcy cases than business filings and that the most common type of consumer bankruptcies involve Chapter 7.

While bankruptcy cases were many in the last few years, the COVID-19 pandemic will almost certainly increase the number of bankruptcy cases. This is because millions of individuals have found themselves out of work as the pandemic forced consumers indoors. A record million Americans have also filed jobless claims in 2020.

Signed in the early months of the pandemic, the Coronavirus Aid, Relief, and Economic Security (CARES) Act made several changes to the bankruptcy. The regulation stated that “recovery rebates” were not included in income when performing the “means test” for Chapter 7 bankruptcy. These rebates also do not count as disposable income. Additionally, individuals who were always in Chapter 13 repayment and who are now experiencing financial difficulties have one year in which to change the terms of their repayment plan. With significant uncertainty about how the pandemic will continue to impact daily living, many people are planning and questioning whether it is better to file for bankruptcy now or wait. While there is no one-size-fits-all way to decide when you should file for bankruptcy, the following considers some of the factors that should influence your decision.

Consider Whether Filing for Bankruptcy Now Will Improve Your Situation

Bankruptcy can only erase certain types of debt. If you primarily owe a non-dischargeable type of debt, bankruptcy will do little to improve your situation. Additionally, if you will continue to have little to no income after the bankruptcy process is complete, you will likely continue to face financial difficulty even if you discharge your current debts. Honestly ask yourself if filing for bankruptcy now will provide the necessary assistance to take control of your financial situation.

Remember You Will Have to Wait Eight More Years

Some people miss a critical point about bankruptcy, which is that you can only file for one Chapter 7 bankruptcy discharge every eight years. While you might feel like you have the time to complete the necessary bankruptcy paperwork, if you pursue bankruptcy and end up facing the same problems a year from now, then you will still have to wait years before you can pursue bankruptcy again. Filing for bankruptcy now does not mean that you will remain in a financially stable situation. Instead, you could end up owing debts again and be subjected to repeated contact from creditors attempting to collect on these debts. While your current situation might feel overwhelming, avoid making a fear-based decision to rush into bankruptcy. Instead, treat bankruptcy as a decision of last resort.

If You Anticipate Having New Debts Soon

If you anticipate facing substantial expenses in the future, you likely should hold off on filing for bankruptcy. Remember, Chapter 7 bankruptcy can only erase debts that you have as of the filing date. Debts that you accrue after filing will be ones you will have to face for years to come. 

This is further complicated by the fact that medical bills associated with care for the coronavirus can be extremely costly. If you file for bankruptcy now and in several months test positive for COVID-19 and need to be placed in an intensive care unit, you could end up facing a mountain of medical bills that will not be discharged any time soon.

If You Had High Income Recently

As part of filing for Chapter 7 bankruptcy, courts will examine an individual’s income over the past six months to decide whether that individual passes the “means test.” If a person’s income is too high, the applicant might only be able to pursue Chapter 13 bankruptcy. If you had a high income but are now facing unemployment or a pay cut, you might not qualify for Chapter 7 now, but you will by simply waiting several months. In these situations, it would be an acceptable strategy to wait until your median income dips so you qualify for Chapter 7 bankruptcy.

Consider Alternatives to Filing for Bankruptcy

You might have decided that now is the time to take control of your finances, but that you need not pursue as serious a process as bankruptcy. Instead, remember that several alternatives can be utilized to take advantage of debt. Some of the strategies that you might consider include:

• The CARES Act expanded protections for homeowners with federally backed mortgages. If you anticipate difficulty meeting your home mortgage payments, you should contact your lender.
• Utility providers as well as communication companies in California have enacted various provisions including payment assistance programs. These programs can provide the assistance you need.
• If you can not pay the minimum on your credit card account, you should not hesitate to directly contact your lender. Many credit card companies are helping customers.
• Enroll in a debt management plan. A credit counselor can help you create a plan based on your needs, goals, and situation to pay off your debts.
• Considering obtaining help from family and friends. Sometimes, loved ones might even agree to give or lend the finances you need to get by.
• While it should always be used as a last resort, taking money out of retirement savings can alleviate dire situations.

Contact a Knowledgeable Bankruptcy Lawyer

Navigating the bankruptcy process is full of challenges. One of the best ways to make sure that you navigate this process smoothly is to retain the assistance of an experienced bankruptcy lawyer. Do not hesitate to schedule a free case evaluation with attorney Melanie Tavare today.