The COVD-19 pandemic that has been gripping the world over the last year has upended daily life for the majority of people both nationwide and in Arizona. The most serious impact of the pandemic has of course been on people’s health, and the terrible and tragic loss of hundreds of thousands of lives. For many people however, the most immediate impact of the COVID pandemic has been in its effect on their livelihood and financial well-being. Many lost jobs, others had their hours reduced, still others have not been able to work due to health concerns. All of this in turn has caused many people to fall behind on their bills and to not be able to cover their basic living expenses, including rent, mortgages, and car payments. It is not surprising, then, that bankruptcy is becoming the solution that more and more people are turning to in order to resolve their debt problems. Although bankruptcy has long been used by individuals and families to resolve debt problems and get a fresh start, the unique circumstances created by the COVID-19 pandemic create new issues that must be evaluated before deciding to file for bankruptcy. If you are considering filing for bankruptcy in 2021, consider the following factors:
How is bankruptcy going to help me deal with the change in financial circumstances?
This is a question that must always be asked before filing for bankruptcy. However, it is particularly important now because in all likelihood, if you are considering bankruptcy, your financial problems are not the result of temporary financial difficulties specific to you, but are caused by a national financial downturn with unknown anticipated duration.
Bankruptcy is effective at accomplishing two major goals: eliminating debt, and restructuring payments on debt that cannot be eliminated (such as a mortgage or a car loan) to allow you to catch up over time. So, the question you have to ask is: if I eliminate my debt, such as credit cards or medical bills, will my financial problems be resolved. If the answer is yes, then bankruptcy is the right option.
Alternatively, if you are behind on rent, a mortgage, or a car loan, the question to ask is: if I can restructure my payments will I be able to catch up over time? If the answer is yes, then, again, bankruptcy is a good option.
But what if your financial problems are caused by a loss of income, you are not sure when you will be able to replace your income, and you expect to continue getting in debt while you are looking to replace your income? This is not an uncommon situation. If this is the case, then filing for bankruptcy immediately may not be the right choice. This is because, although you will be able to eliminate your existing debt, in all likelihood you will immediately incur significant additional debt, and will continue incurring debt until you regain your income. However, you have to wait years between bankruptcies (e.g. the waiting period between two Chapter 7 bankruptcies is 8 years). So if you file for bankruptcy and eliminate only part of your debt, you may be burdened by the later-acquired debt for years to come. The better option in such cases is to wait to file for bankruptcy until your situation improves so that you can be reasonably assured that you will not need to resort to bankruptcy again in the near future. There are some exceptions to this approach, like when you expect your income to increase so much that you will no longer qualify for bankruptcy, but would still be unable to deal with the debt on your own. In such situations, it is best to consult with an experienced bankruptcy attorney.
Are there non-bankruptcy options available?
If there is one silver lining to the nationwide economic impact of the pandemic, it is that the government, both at the federal and state level, is taking steps to minimize the financial impact of the pandemic on the average consumer. This takes the form of restrictions on foreclosures and evictions, emergency loans for small businesses, and direct financial assistance such as increased unemployment benefits. Because these benefits are available to anyone who qualifies, and the qualification requirements are often very broad, it is important to explore all of these non-bankruptcy alternatives before committing to a bankruptcy. For example, under federal law, there are forbearance options available on many mortgages. Additionally, some creditors may provide their own in-house forbearance options. All of these should be explored to determine if they can address your particular financial concerns. If you are unsure of what programs may apply in your situation, you may want to contact a debt assistance attorney or a debt resolution attorney.
Do I need to eliminate debt or do I need help managing my long-term payments?
Another question to ask is whether you need to eliminate debt and start fresh, or whether you have long-term obligations that cannot be eliminated, such as a mortgage, car loan, or taxes, and you need help managing the payments or restructuring them to make them more affordable. The answer will determine what type of bankruptcy you need to file. If you need to simply eliminate debt, then Chapter 7 bankruptcy will be the right option. If, on the other hand, you need to restructure your long-term obligations, then Chapter 13 will likely be the right choice.
Conclusion
If you are struggling with debt as a result of the COVID pandemic, the one thing you should remember is that even though the situation may seem hopeless, there are options available to help you deal with your financial problems. One of such options is bankruptcy. But, in addition, there are numerous other programs offered both by the government and private creditors that could help you manage your finances until the economy begins to recover.
If you need assistance and guidance in resolving your financial problems, Yusufov Law Firm is here to help. We focus on debt-resolution for individuals and small businesses, and are familiar with the many COVID-related assistance programs that are available at any given time.