Personal or consumer bankruptcy enables filers to wipe their financial slates clean when they are overwhelmed by debt and unable to pay their bills. If you are struggling with debt, filing for bankruptcy can prevent creditors from foreclosing on or repossessing your property, garnishing your wages, or shutting off your utility services. Also, the bankruptcy court can approve a plan for you to pay off your debts gradually over a long period of time, or, after liquidating some of your assets to pay down outstanding debts, the court can discharge those debts entirely.
Is the Pandemic Causing More Personal Bankruptcy Filings?
It is likely that we will see an increase in personal bankruptcy cases in the near future. Just how large this increase will be remains uncertain. As of the beginning of May, 2020, personal bankruptcy cases had not yet increased. In fact, there “were 47% fewer consumer bankruptcies in April 2020, compared to April 2019, according to statistics released Tuesday by the American Bankruptcy Institute (ABI) . . . [which is] a professional association for lawyers and judges involved in the bankruptcy process.” There were 30 million unemployment claims filed during the month of April, however, which might result in a surge in personal bankruptcy claims later on.
Some current consumer protections might stave off personal bankruptcy cases. Many homeowners will not be penalized for missing payments on federally backed mortgages right now, for example. Some states have stopped companies from collecting debts, and they have stopped landlords from evicting tenants. The federal government has stopped requiring people to make student loan payments to mitigate the financial impact of the pandemic. While these measures are still in place, an influx of personal bankruptcy claims is unlikely.
Will the CARES Act Help People Avoid Filing for Bankruptcy?
The Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act, provided each American a single stimulus payment to be used for expenses. That money, while helpful, can legally be seized by a creditor from a bank account in a collection action. Without a personal bankruptcy filing in process, those funds are vulnerable to being garnished from wages and bank accounts by overzealous creditors.
The CARES Act added some protections for consumers in personal bankruptcy cases, but these are limited. The biggest change was to extend the amount of time consumers have to pay off their Chapter 13 plans from five years to seven years, but this change only applies those that can show “hardship”, which can be tough to prove, and only it only applies to current bankruptcy filings. Legislators could have made more significant changes, such as setting a maximum amount that debtors can be required to pay.
Are the Bankruptcy Courts Equipped to Handle a Sharp Increase in Claims?
Because we are unsure of how many new cases there will be and how rapidly the number of filings will increase, it is difficult to say. Because the number of personal bankruptcy claims was extremely low before the pandemic began, there is probably available capacity in courtrooms and law offices for additional filings.
That being said, bankruptcy courts still might not be able to help some consumers who really need them. The COVID-19 pandemic could make it difficult for some people to access and file documents in bankruptcy courts. Some groups are disproportionately affected by the inability to access technology or hire an attorney because they are not in a financial position to do so. Those consumers face additional challenges when initiating their bankruptcy cases, especially in states where bankruptcy courts are not physically open and the only easy way to file is online.
One thing is for sure: There will be many more changes made to the personal bankruptcy process as we progress through the pandemic. These changes might help consumers to file and pursue personal bankruptcy cases, or they might make the process more difficult. The best way to protect yourself when filing for bankruptcy is to have an experienced attorney on your side to guide you through.
What Should I Do if I Need to File for Bankruptcy Now?
If you are struggling with debt and considering bankruptcy, find an attorney who specializes in bankruptcy law to represent you. The experienced and compassionate lawyers at Dworken & Bernstein can help you explore your bankruptcy options, make sure that it is the right time to file, and pursue your personal bankruptcy case in court.