During the COVID-19 crisis, the unemployment rate has skyrocketed to almost a new record high at over 14%. With the closing of non-essential businesses, companies are having no choice but to lay off their workers. Leading to personal financial crises within families all across the nation. Knowing if or when it’s time to file for bankruptcy is important in this time of crisis. Ruesch and Reeve Law are here to break down the facts and support you during this overwhelming financial loss.
Types of Bankruptcy
There are 6 total different types of bankruptcies:
- Chapter 7: Liquidation
- Chapter 13: Repayment Plan
- Chapter 11: Large Reorganization
- Chapter 12: Family Farmers
- Chapter 15: Used in Foreign Cases
- Chapter 9: Municipalities
For individuals filing, there are two most common types of bankruptcy. There is the option to have a payment plan, or to discharge your debts completely. Chapter 7, which is the traditional bankruptcy is for discharging debts. It can be known as liquidation, or straight bankruptcy. When filing chapter 7 you either pay for or give up your property in exchange for all of your unsecured debts. Any of your nonexempt property will be given up towards your debt balance. All of your exempt property may stay in your possession and your debt obligations are no longer required to be paid. Being able to file for chapter 7 bankruptcy becomes a mathematical calculation. If you make over the allowed amount, you’ll be required to file for chapter 13 instead and pay off your debts. Chapter 7 is only if you don’t have a sufficient income. The court will decide whether you have enough income to pay off your debts, if not they’ll have you file chapter 7.
When filing chapter 13 bankruptcy you’re technically not filing to get rid of your debt entirely. You’re doing one or a combination of the following: restructuring your payments so they are more manageable considering your income, or getting rid of part of your debt so that you can manage payments. This can be done in a couple of ways. You may spread your payments out over a longer period of time, or only pay part of your debts right away.
This type of debt payment plan may last up to five years. Which means your finances will be watched under heavy scrutiny during this time by the trustee. When filing for chapter 13, you will spend time negotiating with your creditors. They’ll usually try to come up with a plan that gets them their money in larger and faster payments. Even if the creditors object to the plan you put together, it can still go through as well as you stick to your end of the payments.
With sudden job loss that is occurring during this pandemic, chapter 7 is probably what most will qualify to apply for. With no income it’s not really possible to come up with a payment plan.
Other Financial Support Options
If you find yourself in loss of a job during the COVID-19 crisis, the first thing you should do is create a personal financial budget. By tracking where your money is going, instead of planning to run out in the future, you’ll find ways to spread your income and save in other places. Get rid of any bills that are not a necessity. Pay your mortgage, your car and budget in money for food. Those should be your only priorities. From there, you can budget for other bills such as credit cards or maybe monthly memberships you don’t need.
Another financial support system put out to support the public is the stimulus check given by the government. Make sure you include that into your budget and decide what will benefit you most. Whether it’s to make your monthly mortgage payment, or maybe even saving it for a future emergency. Planning is the best way to get ahead of a future financial crisis. Think of it as going into survival mode. Get rid of anything you don’t need to survive and manage your own money before you resort to filing for bankruptcy. You may be able to get by if you spend wisely and budget with what money you have.
If it comes down to it, you could even start getting rid of not only bills, but items you don’t need. Put them up for sale and get that extra bit of income to cover what payments you can. It could help you a lot more than you think. The little things you sell may add up. They could end up covering a big bill for the month and leave you with money to save for the next one.
When Should You File For Bankruptcy
Sometimes filing for bankruptcy is inevitable. The truth is, the stimulus the government provides and your savings will only get you so far. They’ll be very useful in the short term, but those filing for unemployment don’t know when their income will be coming in again. After you’ve put your financial plan into place and received all of the income you could get, it may be time to consider what you’ll have to do next. If you’re no longer able to defer any payments, don’t have enough money to cover bills, it may be time to consider bankruptcy.
It’s never a good idea to stop paying bills if you don’t know whether you’ll qualify for bankruptcy for the simple reason that it can be hard to catch up on payments (although sometimes you don’t have a choice). If you’re considering bankruptcy, speak with a local bankruptcy lawyer as soon as possible. At Ruesch and Reeve they can help you determine if and when the best time for you to file will be.
What Happens After
Protection from your creditors begins immediately after filing for Chapter 7 or Chapter 13 bankruptcy. This is called the automatic stay. Once you file and the automatic stay takes effect, your creditors are not allowed to take collection action against you. After you file for bankruptcy protection, your creditors can’t call you, or try to collect payment from you for medical bills, credit card debts, personal loans, unsecured debts, or other types of debt. Wage garnishments must also stop immediately after filing for personal bankruptcy.
Filing bankruptcy will initially lower your credit score. When filing for bankruptcy, you can apply for things such as a home loan as early as two years later. The sooner you file, the sooner you can start rebuilding your credit. How far your credit drops will depend on how high or low it was before filing. They’re usually already lower because of missed payments leading up to filing for bankruptcy.
Rebuilding your credit after filing starts with getting credit cards and using them wisely. A good repayment history will help your credit immensely. So if you use the credit card to pay your bills, then pay it off in full every month. Only use if for things you know you have the money to pay it off at the end of the month. There are other ways to also rebuild your credit and financial advisors to help you with that process.
Certain things happen in every Chapter 7 bankruptcy, like being assigned a bankruptcy trustee and attending the meeting of creditors. Other things happen only in some cases, which depend on what the filer wants and what they own, like what they want to do with a vehicle or if there is a nonexempt asset they want to pay to keep. The experts can help you determine which plan will benefit you most and help you keep what’s most important to you.
The financial burden that COVID-19 is affecting millions of americans. Filing for bankruptcy shouldn’t be something to be ashamed of. If it’s your last resort and you’re no longer able to financially support yourself, Ruesch and Reeve are here to help. If you’ve done everything possible to save your money, sell your things you don’t need and have prioritized the bills that need to be paid first and are still falling behind, it’s okay. Bankruptcy isn’t the end of the road. You can only go up from there. At Ruesch and Reeve law they specialize in situations like yours.
They will help you figure out which form of bankruptcy needs to be filed and help create a financial plan to make the process smooth and efficient. Filing for bankruptcy is a debt relief process that can help get you back on your feet after this huge world financial crisis.
The lawyers at Ruesch & Reeve Law Firm are here to help you during this trying time. Contact us today about your case, our team is working and offering consultations via phone, email, and video conferencing.
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Building C Suite 101
Hurricane, Utah 84737