Whether you were struggling financially before the spread of COVID-19, or if quarantine measures have drastically changed your financial situation, you may be considering bankruptcy as a means of financially protecting yourself and your family. Just because the world has basically shut down doesn’t mean your creditors won’t try to collect on your debts. When you file bankruptcy, the automatic stay of protection prevents your creditors from foreclosing your home, repossessing your vehicle, and garnishing your wages and bank accounts.
Since the onset of the pandemic, approximately 30 million Americans have filed for unemployment. Many lenders are choosing to suspend payments for at least a few months since many of their customers are unable to pay. However, lenders that aren’t required by law to suspend your payments may still choose to pursue collection. Call your lenders to see if they will work out a payment plan with you- if not, you should consider filing bankruptcy.
First Step to Using the Automatic Stay
The first step to using the automatic stay to protect your assets is to determine the type of debt on which your creditors are attempting to collect. Is it an unsecured, nonpriority debt such as credit cards or medical bills? These creditors will likely attempt to collect through wage or bank account garnishment. If so, Chapter 7 will allow you to discharge the debt entirely. There are income and asset value limits to qualify for a Chapter 7. If you don’t qualify for a Chapter 7, or if you are a few months behind on your mortgage or car payments, Chapter 13 may be your better option. A Chapter 13 reorganizes your debt into a 3-5 year repayment plan, allowing you to spread out your arrearages over the life of the plan.
If you don’t need the assistance of a Chapter 13 plan to catch up payments, you will need to figure out if you qualify for a Chapter 7. There are two ways to qualify: by making less than your state’s median income level for your family size, or by proving you can’t repay your debts through the Means Test. The median income level in Arizona for a single earner with no minor dependents is $51,388. That amount increases fairly gradually if you have a spouse and for each minor dependent. If your income exceeds that amount, you may still qualify to file Chapter 7 through the Means Test. You will likely need to consult with an attorney to conduct a Means Test. You and your spouse’s six months of income will be averaged, and mandatory expenses will be deducted by the court. If the number your reach falls below the applicable amount, you can still file a Chapter 7.
The Automatic Stay and Bankruptcy
The Automatic Stay will activate as soon as your petition is filed in both a Chapter 7 and a Chapter 13. To file your petition, you will need to gather all documents necessary for your case, and either provide them to your attorney or draft your petition yourself. You will need to take an online credit counseling course before you file, and your bank accounts will need to be at or under $300 (or $600 for married filers) on the day that you file. If you are filing to stop a wage garnishment, you will need to provide your bankruptcy case number to your payroll department.
Once your case is filed, the Automatic Stay remains active until your case is discharged or dismissed. In a Chapter 7, this is typically 3-5 months. In a Chapter 13, your case won’t be discharged until you make the final payment in your payment plan. A dismissal means the court threw out your case, but you may be able to get your case reinstated. Consult an attorney if you have previously filed, been dismissed, and are re-filing. Certain limitations on the Automatic Stay may apply.
Emergency Bankruptcy Filings
If collection by your creditors is imminent, discuss the possibility of an emergency filing with your attorney. An emergency, or skeleton, filing allows you to file your petition with only a few documents, and gives you two weeks to submit the rest of your petition. If you have access to a computer, your paystubs, and your forms of identification, many attorneys should be able to emergency file your case same-day. If you aren’t in an emergency situation, you can still retain an attorney in advance. Once you inform your creditors that you have retained a bankruptcy attorney and provide their contact information, your creditors are no longer allowed to contact you.
With all that is going on in the world right now, the last thing you want to be worrying about is a vehicle repossession or a wage garnishment. These methods of collection can create a compounding problem where you fall further into debt trying to resolve the repossession or survive the garnishment. Whether you are in an emergency situation or have the luxury of time to prepare your case, our office can help. We offer free phone consultations and can conduct a Means Test, estimate your payments in a Chapter 13, and inform you about the bankruptcy process. Call to speak with one of our experienced professionals today.