Should You File Bankruptcy Amidst COVID-19?

It’s a difficult question to ask oneself anytime, but the stress of the pandemic has made answering it even more difficult. No one wants to lose their job, close their business, or run out of money because of an unforeseen problem. But it happens to millions of Americans every year. The stigma of doing so rarely changes the outcome. Here’s why you might or might not consider filing bankruptcy amidst COVID-19.

Last year’s CARES Act allowed many businesses to hold off declaring bankruptcy for months. By the time the next stimulus arrived, it was too late for thousands of others. Even big retailers began to feel the impact of economic decline.

When answering the question for yourself (and each individual case is different), it’s worth asking a follow-up question: Would a Chapter 7 or Chapter 13 bankruptcy change the outcome? For most people who are out of work or on unemployment payments, the answer is likely “no.” One of the biggest factors is time. Once you file for Chapter 7 bankruptcy, you cannot file again for eight years. That means dropping the hammer could reduce the debt relief options at your disposal for a long time — and you might need those if the economy continues to struggle. None of us knows what will happen.

Keep in mind that the pandemic is not over. If you don’t have health insurance and become seriously ill, the medical bills could be astronomical. It might be more beneficial to wait to file bankruptcy if the possibility of additional debt is possible in the near-future. Filing for bankruptcy won’t give you a job or guarantee that you’ll be able to make ends meet. It will only guarantee that your ability to get out of hot water is limited in the future. 

What two things should you do immediately before deciding whether or not bankruptcy is the right move right now? You should talk to a financial consultant and bankruptcy lawyer immediately. Both professionals can help steer you in the right direction by limiting payments right now or cutting needless expenditures. Don’t make a decision without consulting with the professionals who are best-versed in the long-term consequences of these types of decisions.

When deciding that filing is the right course of action, you should find out if you even qualify. Chapter 7 bankruptcy is only for those who are in exigent circumstances, i.e. there’s no way for you to possibly pay off your debt while making ends meet.

You will receive a “means test” to determine whether or not you qualify. It’s based on six months of income — which unfortunately means that even when you’re making nothing, you might not qualify yet because you were making tons of money two months ago. Tough luck, right? Be sure that your claim is almost certain to be accepted before spending money on a filing fee. You don’t want a bankruptcy filing on record if it won’t do anything for you.

It’s also important to discuss the impact of bankruptcy on your assets — because you stand to lose quite a lot.