Coronavirus and Bankruptcy: Everything You Need to Know

The novel coronavirus is impacting all aspects of our daily lives, from social distancing to unemployment, as people around the world try to figure out their “new normal” and their finances along with it. In the midst of financial uncertainty due to COVID-19, you may be considering filing for bankruptcy.

From June 30, 2018 to June 30, 2019, there were nearly 500,000 Chapter 7 bankruptcy filings in America, which was significantly less following the Great Recession. From 2009-2012, there were over 1 million Chapter 7 filings.

Rohan Pavuluri, CEO and co-founder of Upsolve, said filings have declined extensively since the market crash of 2008, but he expects them to increase due to pandemic-driven unemployment. And he would know – Upsolve is an online platform that helps people navigate the intricacies of bankruptcy paperwork for free, similar to TurboTax but for bankruptcy filings.

Since Upsolve launched its COVID-19 and bankruptcy FAQ page on March 18, it has seen an uptick in traffic and page views. He said Upsolve’s coronavirus page is responsible for 20% of their online traffic and is the company’s most popular web page at the moment.

How the COVID-19 CARES Act affects bankruptcy

Congress recently passed the CARES Act relief package, a roughly $2 trillion coronavirus response bill intended to keep the economy afloat and provide financial relief to Americans across the nation. The new legislation instituted some significant changes that affect those considering filing for bankruptcy or anyone who has already filed.

If you’re receiving government relief payments during the COVID-19 pandemic, it cannot be turned over to bankruptcy trustees and it will not affect your income reported on a Chapter 7 or Chapter 13 filing. The new legislation also allows those who file for Chapter 13 bankruptcy to adjust their plans if they’re experiencing hardship due to the virus, according to the Law Offices of Robert M. Geller, P.A.

The Law Offices of Robert M. Geller, P.A. says the bankruptcy process will likely slow down due to COVID-19.

“Despite the delays, you should remain aware of all deadlines associated with your case, including when filing fees and paperwork are due,” according to the report. “Due dates for submitting proof of bankruptcy education and other deadlines haven’t changed.”

Should I file for bankruptcy?

While everyone’s circumstances are different, most people shouldn’t file bankruptcy until they’ve reached the lowest point of their financial situation. You may be in the process of deciding whether to file for bankruptcy because of how the pandemic has affected your financial situation, but keep in mind that it should always be the last resort.

Bankruptcy courts are closed for in-person visits but filing bankruptcy over the phone is still an option during the outbreak. However, there are many things to consider beforehand such as whether your financial situation will get better with government relief and the impact it can have on your credit.

If you are wondering if you should wait to file or if relief payments will be enough to prevent bankruptcy, the answer depends on your personal situation. The best course of action is to speak to a financial professional or use a free bankruptcy platform like Upsolve to determine what to do next.

“If you’re in so much debt that you’ll never be able to pay it back, then you should likely file for bankruptcy,” Pavuluri said.

What if I can’t afford to file for bankruptcy due to COVID-19?

There are usually high costs associated with filing for bankruptcy — mostly due to lawyer’s fees — but a free tool like Upsolve can be an alternative solution for those financially impacted by COVID-19. To date, Upsolve has relieved over $200 million in debt.

In most states, you can file your bankruptcy paperwork electronically if you have a lawyer. However, anyone who uses Upsolve to fill out their bankruptcy paperwork will need to either mail or hand-deliver them. Pavuluri says it’s one of several ways the bankruptcy system discriminates against lower-income individuals.

“Hopefully we can educate legislators, judges and clerks to create a more user-friendly situation in the future,” Pavuluri said.

Although the outbreak is financially impacting individuals and businesses, he says people should not panic and file for bankruptcy without seriously analyzing their financial situation.

“You want to file for bankruptcy at your financial trough,” Pavuluri said. “It’s important that you don’t hurry into it.”

Experts cited

Rohan Pavuluri

Rohan Upsolve

Rohan Pavuluri is the co-founder and CEO of Upsolve, the largest nonprofit in America that helps low-income and working-class families file bankruptcy for free. Rohan is a graduate of Harvard College, where he studied statistics.

 

 

 


More Resources

At the Simple Dollar, we have been following COVID-19 since the start. Check out the articles below for resources and the latest news on financial relief from the coronavirus.

Alex Gailey is a financial reporter at The Simple Dollar who specializes in banking, deposits, mortgages and personal finance. Her writing has been featured in Yahoo Finance, MSN, Atlanta Business Journal, Charlotte Business Journal, The Boston Globe, and elsewhere.

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