The coronavirus pandemic has had devastating financial effects on many families as a result of widespread job losses, business curtailments and company closures. If you have become burdened with overwhelming debt during these harsh times, a Chapter 7 bankruptcy may offer you the fresh start you need to move forward.
If you are suffering loss of employment or have had a substantial reduction in income as a result of the recession caused by COVID-19, you may be eligible to file for Chapter 7 relief, even if you did not qualify previously due to your past income level. While the number of bankruptcy filings have declined during the pandemic, more people may be needing the protections Chapter 7 offers once their unemployment benefits and other government assistance payments run out.
A Chapter 7 bankruptcy can forgive most of your debts while allowing you to keep certain property in order to help get back on a good financial footing. If you meet the requirements for eligibility, filing for Chapter 7 bankruptcy can wipe out many types of unsecured debts such as:
Although certain types of debts — such as child support, alimony, student loans and unpaid taxes — cannot be discharged in bankruptcy, Chapter 7 can still offer effective relief.
To start a Chapter 7, you usually must pass the “means test,” which considers your average income over the six months prior to filing. Unemployment benefits and payments under the CARES Act are not counted as income. If your average monthly income is below the median income in your state for a household of the same size, you have passed the means test. If your monthly income is above that amount, you must demonstrate that your disposable income, after paying for certain essential expenses, is not enough to pay off at least a portion of your unsecured debts.
If your loss of employment or other income was recent, you may not qualify for Chapter 7, since the means test looks back at the income you made over the last several months. However, the Bankruptcy Code provides an exception if you can demonstrate special circumstances, such as suffering from a serious medical condition, elimination of your job position, a layoff and an unanticipated income reduction. A COVID-19 related loss of income would qualify under this exception.
Importantly, an automatic stay is put into place once the Chapter 7 petition is filed, prohibiting creditors from taking legal action against you, or attempting to collect any debts. In addition, mortgage lenders are not permitted to foreclose on your home while bankruptcy proceedings are ongoing.
With offices in Athens, Douglasville, Gainesville, Lawrenceville, Marietta, and Scottdale, Jeff Field & Associates guides clients through the nuances of Chapter 7 bankruptcy proceedings throughout the Atlanta metropolitan area. To schedule an appointment, call 404-381-1278 or contact us online.
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