The financial impact of the coronavirus pandemic is undeniable. Both large and small businesses are closed or have reduced their operations…some permanently, some temporarily. This has meant that millions of employees and self-employed individuals are now unemployed, or substantially underemployed. The federal and state government “emergency relief” programs and moratoriums on collection actions of certain debts have been of some help to assist the newly unemployed or underemployed. However, many individuals and households had prior significant debt and are now increasing that debt. With no income, or income that barely covers real necessities, eventually they will face the prospect of filing bankruptcy as an option.
For individuals and small businesses, the Bankruptcy Code offers Chapter 7 and Chapter 13 options. Chapter 7 allows for the discharge of most types of debt. Eligibility for this type of bankruptcy largely depends on an income and expense analysis. However, if you have no income, or your household income has been significantly reduced, it may be time to at least explore the present or future option of getting a “fresh start” through a Chapter 7 bankruptcy.
Chapter 13 is for those who are not eligible for Chapter 7 and can afford to make some payment to their creditors. A Plan is developed that takes the debtor’s excess disposable income (difference between income and reasonable, necessary expense) and makes a single payment to the bankruptcy trustee for distribution to the creditors. Payments are made for up to 5 years, or until unsecured creditors receive 100% of what is owed. After the 60th payment, if money is still owed to an unsecured creditor, it is fully discharged.
If you or anyone you know is experiencing an adverse financial impact due to COVID-19, now is the time to evaluate whether you need or will need to consider filing for bankruptcy protection from creditors. At Caldecott & Forro we recommend you take the following actions, especially if you are at home and have suffered a loss of employment income.
1. Make a list of all your financial accounts (checking, savings, investment, retirement, education) with current balances;
2. Make a list of all items you spend money on each month. Then using that list and the sources you use to pay for those items (checking or other bank account, credit cards), total the amounts you have spent on each item in the previous 3 full months;
3. Make a list (with account numbers and addresses) of every creditor, including banks, mortgage companies, car/vehicle lenders, credit cards, doctors, lawyers, accountants, hospitals, clinics, friends, relatives, etc. and the current amount owed.
4. Take inventory of the real and personal property in which you have and ownership interest (assets). The inventory should be broken into general categories such as furniture, sports and hobby items, clothes, jewelry, cookware, dishware, utensils, tools, motor vehicles, etc. Where possible place a value (sale price you could get) on the items listed.
5. Average your household income for the previous 6 months. Then take a look at what kind of income you may have over the next 12 months, starting with your actual current monthly income.
The above 5 items, when completed will, in many cases, provide the first comprehensive look at your overall household finances. It will enable you to create a current budget. Finally, it will assist in performing an initial analysis of whether you may need to file bankruptcy. We urge everyone in financial distress to comprehensively evaluate their financial situation immediately upon experiencing any adverse economic effects.
At Caldecott & Forro, P.L.C we have performed these analyses for our clients. Using both bankruptcy and non-bankruptcy methods, our clients have gained financial freedom from creditors and financial stability in their futures. We provide free initial consultations. This article is not a substitute for legal advice in the context of a specific case.