Does the Pandemic Have You in a Holding Pattern? Here’s How to Know When to File for COVID Bankruptcy

COVID Bankruptcy

If you’re struggling to make ends meet and you feel as if your life is on hold because of COVID-19, you aren’t alone. Many people who have lost their jobs and are struggling financially feel as though they are in a holding pattern. Filing for COVID bankruptcy might help.

And with such a slow return to normal in many places, it’s no wonder people are questioning their next step. In many cases, the best option for those dealing with the financial burdens of the pandemic is to file for bankruptcy.

Types of Bankruptcy

Understanding the different types of bankruptcy and knowing when to file can save you a lot of headaches and grief and will help to ensure that the process will go much more smoothly.

You’ll choose between two different chapters if you file for COVID bankruptcy.

In Chapter 7 bankruptcy, you receive a discharge of a significant portion of your unsecured debts. Depending on the type of debt you’ve accumulated, this chapter of bankruptcy can leave you entirely debt-free. Chapter 7 includes the liquidation of many of your assets, so it’s best for people who aren’t interested or don’t need asset protection.

Chapter 13 bankruptcy, on the other hand, is a reorganization of your debts, including your secured debts. You get to retain ownership of most of your debts, but you don’t enjoy the same discharge benefits of those filing for Chapter 7. In Chapter 13, you commit to a payment plan over three to five years that allows you to pay off all or a portion of what you owe on unsecured debts and bring other debts current.

Determining which chapter of bankruptcy is right for you can be tricky, which is one of the reasons why it’s important to speak to an attorney. You should also note that not all debts are discharged in Chapter 7, so you and your attorney will review your obligations and your options to determine the best way to proceed. Your attorney will also help you with the bankruptcy means test which allows you to determine whether or not you qualify for Chapter 7.

Timing of Filing

The other thing you’ll want to consider when choosing between Chapter 7 and Chapter 13 is your timeframe. Chapter 7 bankruptcy takes about six to seven months. Chapter 13 takes several years. Both offer immediate automatic stays, which means debt collectors must stop contacting you as soon as you file, but as for how long the protections last, that varies from Chapter to Chapter. You can learn more about bankruptcy’s automatic stay in this article from Bankrate.

Finally, you’ll want to consider your credit. If you’ve been dealing with significant debt for some time, chances are your credit reflects these challenges. But if the pandemic brought on your challenges and things weren’t too bad before mid-2020, your credit might be in decent shape. Filing for bankruptcy will damage your credit, but for many, the damage was already done. You’ll want to review your credit report before deciding whether to file or not.

What Can I Do If COVID Bankruptcy Isn’t Right for Me?

Keep in mind, bankruptcy isn’t your only option when it comes to dealing with debt. In some cases, making a few budgetary changes to adjust to the so-called new normal is enough to keep you afloat.

It’s also possible to reach out to your creditors and explain your situation. Many understand the unusual circumstances of the pandemic and are willing to make adjustments to help customers deal with their circumstances.

Credit counseling programs are also an option, but it’s important to find one that is credible. There’s a lot of scams out there, so make sure you’re working with a qualified non-profit agency approved by the National Foundation for Credit Counseling.

Nobody knows what’s ahead after the pandemic, but that doesn’t mean you need to live in fear of bill collectors and aggressive collection efforts. To learn more about bankruptcy or schedule an appointment to discuss your options with someone, contact the Law Office of Robert M. Geller at 813-254-5696.