Has the COVID-19 Pandemic Changed Bankruptcy?

The COVID-19 global pandemic has affected many areas of life, including bankruptcies. If you’re considering bankruptcy, understanding how the pandemic has affected the process may help you determine if it’s the right move for you. Because most of these changes are temporary, you may decide you need to file now in order to take advantage of them.

Stimulus Payments are not Income

First, when determining your disposable income for Chapter 7, you don’t have to count any stimulus payments. Any money that was paid to you from the federal government as part of the CARES relief package or other COVID-19 related initiative is not considered income. Unemployment benefits, including the increased benefits that went into place during the pandemic, also do not count as earned income.

You May Be Able to Arrange a Longer Repayment Plan

Typically, Chapter 13 repayment plans last for five years. During this time, the amount you negotiate with your creditors is divided into monthly payments, and any remaining debt is forgiven at the end. You may be able to extend your Chapter 13 plan to seven years, even if that plan was confirmed prior to March 2020. The amount you agreed to repay will not change, but you will spread that amount over seven years instead of five, making your monthly payments smaller.

You May Qualify for Chapter 7 Now

If you have been considering bankruptcy, didn’t qualify for Chapter 7 due to your income, and then later lost all or some of your income due to the pandemic, you may now qualify for this option. Chapter 7 bankruptcy looks at your last six months of income. Even if you did find a new job after being vaccinated, it’s still possible your overall average income for the last six months qualifies for Chapter 7.

Courts May Be Backed Up

Early in the pandemic, many courts were closed for a month or longer. This combined with the higher number of bankruptcies being filed due to people losing their jobs means that the process may take longer than normal. Be patient. Once you do file, your payments to creditors will be put on hold quickly, so you won’t need to worry about continuing to slide into debt.

Need help with filing bankruptcy? Michael F. Kanzer & Associates can help. Contact us today for a free consultation.

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