Disclaimer: Pacific Debt, Inc. is not a law firm and this article should not be construed as legal advice. Only a licensed attorney in your state can provide legal advice.
The Covid-19 pandemic is leaving a path of destruction in its wake, including everything from social issues to financial problems. The most recent epidemic is expected to be bankruptcies. Some experts are predicting that there will be a record number of bankruptcies and homelessness caused by COVID-19 by the end of the year.
In the first half of the year, people were able to stay afloat because of government and business aid but these are ending soon and more stimulus programs have been stalled in the Senate. We can likely expect a wave of evictions, foreclosures, and bankruptcies in the next few months as well as municipal financial problems. Experts at Federal Reserve banks expect COVID-19 related bankruptcies to reach up to 1 million in the next few months if there is no governmental intervention.
The Chamber of Commerce expects 43% of small businesses will close by the end of the year. Chapter 11 bankruptcies were up almost 50% in May from 2019 and rose 30% between April and May. These numbers are worse than the bankruptcy rate in 2009, during the great recession.
The numbers aren’t in yet for Chapter 7 bankruptcies (personal) but they are expected to climb as well. Thanks to governmental assistance, many people were able to avoid bankruptcies from COVID-19 in the first 6 months of the year. However, as we stated, those appear to be ending. Before considering bankruptcy, let’s look more closely at it and what it really means for you.
Types of Bankruptcies
There are several different types of bankruptcies and we will discuss the most common. There is also a special bankruptcy for farmers and fisheries (Chapter 12) that we won’t discuss because of the fairly narrow parameters.
- Chapter 7: You must qualify for Chapter 7 and prove that your income falls beneath the median average for your state. It should discharge any unsecured debt (like credit cards). You may be required to sell any non-exempt assets. This includes types of property not necessary to your home, work, or safety and wellbeing of your family.
- Chapter 13: This type of bankruptcy requires you to set up a payment plan. You’ll need a steady income to make the required monthly payments. This does not absolve you of all debt but it may save some of your assets.
- Chapter 11: This requires a reorganization or restructuring of the company. You are not required to sell assets but will be required to set up a repayment plan. The goal is to keep the business running.
For more information about bankruptcies, please check out the Top 10 Most Common Bankruptcy Questions.
The Pros and Cons to Consider Before Filing Bankruptcy
Bankruptcy comes with a special set of pros and cons that you should consider before filing, especially over credit card debt.
On the plus side, bankruptcy can
- Eliminate or reduce most of your debt
- Temporarily bars creditors from foreclosure or repossession
- Temporarily prevents wage garnishment or utility disconnection
- Temporarily stops contact with debt collectors or collection agencies
On the negative side, bankruptcy can:
- Affect your credit scores for up to 10 years, which can make it harder to get loans
- Become part of the public record and is viewable by potential employers, banks and other companies, and even nosy neighbors
- Carry along a stigma of failure with it
- Become very expensive and time consuming. Most people need a professional to guide them and the filing fee itself can be expensive
COVID-19 Caused Changes in Filing
The pandemic has forced some changes to bankruptcy filings. If you currently have a Chapter 13 repayment plan, you may be able to extend the plan up to seven years. However, you will need to show COVID-19 caused material hardship.
Stimulus checks and other federal payments are not counted as monthly income for Chapter 7 or as disposable income for those in Chapter 13.
Another change is that courts are going to virtual meetings and hearings which most likely means you won’t have to take as much time off work to attend.
Before you take the final step of filing for bankruptcy, check out some alternatives. Because courts are backed up after mandated closures, you still have time to do your research.
Credit counseling involves working with a professional to create and stick to a budget. This may not be an option if you are teetering on the edge of bankruptcy. Credit counseling is never a bad thing, you can learn how to handle money more effectively, but it’s not a quick answer.
Debt consolidation is an agreement with all or most of your creditors to roll bills into one monthly payment. It may extend out the amount of time you have to pay. You may also be able to secure a lower interest rate loan to pay off the existing, higher interest rate debt.
Debt settlement involves negotiating with your creditors or collection agencies to lower the total amount owed. As the negotiations are underway, you may be able to save up funds to pay off the loans. You should hire a professional company like Pacific Debt, Inc to do it for you because Debt settlement may require an exorbitant amount of time to complete the process.
Each one of the above mentioned bankruptcy alternatives comes with pros and cons, so for a deeper discussion on debt consolidation vs debt settlement, following this link.
If you would like to speak with a debt specialist right away, the award winning team at Pacific Debt, Inc can help explain your options and guide you to the best option for your unique situation. While we specialize in debt settlement, that may not be the best option for you and we can refer you to a trusted partner.
About Pacific Debt, Inc
If you are entangled in unsecured debt ($10,000 or more) and are having trouble paying off current bills, let alone old debt, there is help available!
Pacific Debt Inc is one of the leading debt settlement companies in the US and we have settled over $300 million in debt for our customers since 2002.
If you’d like more information on debt settlement or have more than $10,000 in credit card debt that you can’t repay, contact Pacific Debt, Inc. We may be able to help you become debt-free in 2 to 4 years.
Pacific Debt, Inc has been consistently named one of the best debt settlement companies for years. In 2020, we were proud and honored to have earned two #1 rankings for our customer service.
Pacific Debt, Inc is accredited with the American Fair Credit Council and is an A+ member of the Better Business Bureau. We rate very highly in Top Consumer Reviews, Top Ten Reviews, Consumers Advocate, Consumer Affairs, Trust Pilot, and US News and World Report.
Pacific Debt is currently providing debt relief coverage in the following states:
Alabama, Alaska, Arizona, Arkansas, California, Colorado, District of Columbia, Florida, Idaho, Indiana, Kentucky, Louisiana, Massachusetts, Maryland, Michigan, Minnesota, Missouri, Mississippi, Montana, North Carolina, Nebraska, New Mexico, New York, Oklahoma, Pennsylvania, South Dakota, Texas, Utah, Virginia, Wisconsin
* Other states can be connected to one of our trusted partners