COVID-19 and Bankruptcy
What is the economic impact that the corona-virus is having for millions of Americans and what is the best practices of using bankruptcy to recover from these difficult economic times?
With the entire world dealing with the global pandemic of Covid 19, the citizens of the United States will soon be dealing with the economic realities that this virus has cost us. This blog is not to discuss the Covid 19 virus on any level, simply the economic impact of hospitalization and quarantine due to contracting the virus, lock-downs, businesses forced to close and the state sanctioned stopping of all eviction cases. Most importantly, will be covering the particular situations people will be finding themselves in and the best uses of bankruptcy to recover from these economically difficult times.
There are several main ways that the global pandemic will affect citizens of the United States economically and there are very specific remedies that can be used in bankruptcy to recover from these economically difficult times. This blog we will explore the various situations that may arise and the best use of bankruptcy to alleviate them. First I will attempt to briefly cover several situations that will lead people to file bankruptcy and then I will go over the particular chapter of the bankruptcy code used to remedy your particular situation and also the timing of filing a bankruptcy petition. Even though the same virus may cause millions of Americans financial hardship, the particular chapter of the bankruptcy code used and the timing of filing your petition are very different, depending on your particular situation.
Health and Covid-19.
Contracting the corona-virus and subsequent required quarantine after hospitalization, will be one of the most common situations that will cause Americans file for bankruptcy (medical reasons). If this is a situation that you find yourself in, there are very important steps you should follow to ensure that you recover as quickly as possible from your financial situation. Obviously, the very first thing you should be concerned with is your help and do everything possible to get your health back on track and deal with the ramifications of the two week quarantine after you’ve recovered, before dealing with your financial situation
Lock-downs and Business Closures.
State sanctioned lock-downs and businesses forced to close during the pandemic, will be the second most common reason that people go into a financial crisis due to Covid 19. Basically in this situation, the vast majority of you will not be sick, but will be forced to deal with the ramifications of the economic situation you have been placed in, even if you are completely fine to go to work. The situations will affect certain citizens of the United States differently, depending on the state that you reside in and the regulations that your state politicians have put into place. Even if you’re completely healthy, if you are not allowed to go to work or if the business you once worked in has permanently closed due to the economic impact of business closures, the real result is the same, eventually you will have no job and no income. Unemployment and stimulus checks will not last forever, and many people will be dealing with the situation of being jobless once all the lockdowns have been removed. Many business owners will suffer the loss of the business they’ve worked their lifetime to build, simply because they are not able to support their overhead during the shutdown. This particular situation is certainly less common in United States, if you took away Covid 19, although it does happen. Knowing what to do in handling your particular financial situation through the use of bankruptcy, will have you taking into account your particular financial situation and the different options available through filing for bankruptcy.
Evictions and Foreclosures.
Evictions in the future will have huge impact on the United States economy, due to the Covid 19 virus. Many states have put in place regulations that do not allow for landlord to evict a tenant or for a bank to foreclose on a property owner, for a set amount of time. This of course will vary from state to state, but in Massachusetts where we are located, evictions and foreclosures were placed on hold back in March and as of today August 4, 2020, has been extended to the middle of September. This on its face may seem like a great idea, not to be able to be evicted or foreclosed upon for nonpayment of rent or monthly mortgage payments. This couldn’t be further from the truth, it will only cause financial ruin for both landlords and tenants. It’s obvious to see why a landlord would be devastated by these policies put in place by their state politicians, but it’s a little more difficult to see the impact that this will also have on tenants. Obviously if a property owner cannot make their mortgage payments for several months or half a year, once the ban on foreclosures is lifted, they will already be 90 days behind on their mortgage payments and will automatically be placed in foreclosure proceedings (unless some deal is made with the bank). And for many tenants, who think this will not affect them, they are completely wrong. During most foreclosures, the banks like the properties empty to get the best price at a foreclosure sale. It’s also very important for people to realize that banks do not like to be landlords and they do not want to deal with the day-to-day headaches of having tenants, thus they will in most situations, evict all the tenants from residential housing of the building that’s going into foreclosure. So, in my humble opinion, one of the worst economic disasters we will see after this global pandemic, is going to be a housing crisis. We will dive into what the best way for you to handle this particular situation.
I’ve also written a blog and posted the YouTube video on when is the best time to file bankruptcy, that is probably a good place to turn to after you finish with this, as it will expound on many of the principles I’m discussing in this blog and video.
Which Chapter of Bankruptcy Code to use?
The very first thing you must address is which chapter of the bankruptcy code will you utilize, Chapter 7 Bankruptcy or Chapter 13 Bankruptcy. I will not dive into all the difference between the two forms of consumer bankruptcy, I have other blogs and videos on that subject, I’m just going to give a brief overview as it pertains to the subject matter of corona-virus. The first thing that you must consider is, do you have secured property that you wish to retain, such as real estate or other secured property like an automobile. Basically, the question is, do you have any debt that is secured by collateral (such as a house or a car), that you wish to retain. Next, is to determine if you’re even able to take advantage of Chapter 7 Bankruptcy. At this point I would take the time to review my blogs and videos on the differences between Chapter 7 bankruptcy and Chapter 13 bankruptcy, and also watch the videos that dive deep into both of these forms of consumer bankruptcy.
If you’re a property owner, and want to save your real estate, and are behind on mortgage payments and facing foreclosure, and have the financial means to do so, chapter 13 bankruptcy is certainly the right choice for you. If you find yourself in a situation where for months you are not able to make your normal monthly mortgage payments, it’s but now you have the income needed to once again start paying your monthly mortgage payments, chapter 13 bankruptcy will allow you to pay off the delinquency of the mortgage over a 3 to 5 year period. With chapter 13 bankruptcy you must be able to pay your normal monthly mortgage payment and be able to afford repaying your delinquent mortgage payments over 3 to 5 year period. There are a lot of factors that go into the equation, but to make things simple, if you can basically pay your normal monthly mortgage payment, then you take the amount that is delinquent divide by 36 (months) or 60 (months), then add 15% to that number and you will have obtained your monthly repayment plan amount. This amount is on top of your normal monthly mortgage payment in the amount you can afford should dictate if you either take a three year for a five year chapter 13 bankruptcy repayment plan. Please understand this is an extremely simplified equation, and does not do justice to how complicated formulating a repayment plan for Chapter 13 bankruptcy is, this is just to give you a basic roundabout figure of how much it will cost you. Remember that you may also have to include some unsecured debt in that equation, which may increase the number on the monthly repayment plan schedule. This is the most important piece of information you need to know when facing losing your real estate property and the financial resources you will need to be able prevent this and move on.
For those of you who are not worried about losing a piece of real estate due to Covid 19 and are financially able to file for Chapter 7 bankruptcy (some people due to high levels of income or collateral securing debts, may not want be able to consider chapter 7), then chapter 7 bankruptcy will be your best option. For the sake of this blog, we will assume that you are able to file for Chapter 7 bankruptcy and then you are not attempting to save any collateral letter securing the debt, which faith leads us to when you file Chapter 7 bankruptcy, not if you will file Chapter 7 bankruptcy. So now were talking about timing, not if you will file, but when you will file. Many people will want to file for Chapter 7 bankruptcy as soon as possible, that in certain situations this is the wrong choice to make. Unless you have no other options and you are using chapter 7 bankruptcy to prevent an eviction or possibly a court judgment from being attached to your real estate and time is of the essence, then planning exactly when you file your chapter 7 bankruptcy petition is critical. With a chapter 13, this soon as you can afford to start making your normal monthly mortgage payments and can afford the repayment plan, there’s no benefit in waiting on filing Chapter 13 bankruptcy. This is not true for Chapter 7 bankruptcy, and there is more strategy involved. To simplify matters, as most of this is in covered in other videos and blogs I posted that you can refer to, I’ll make the simple. You do not want to file Chapter 7 bankruptcy on your way to hitting rock bottom, you don’t want to file when you hit rock bottom, you want to file Chapter 7 bankruptcy after you’ve hidden rock bottom and are starting the climb back out of that hole. The reason for this is we want to encompass as much of your financial debt as possible and take advantage of any financial benefits you can, prior to filing for Chapter 7 bankruptcy. Basically, you want to capture is many debts as possible when filing a chapter 7 bankruptcy, as these will be completely wiped out. It makes no sense to file Chapter 7 bankruptcy when you know things will be worse for you in the future, as Chapter 7 bankruptcy allows you many options to escape things such as evictions and terminate lawsuits against you.
In conclusion, if you find yourself, due to the Covid 19 pandemic, with a loss of income due to any the previously discussed subjects or losing your property due to these reasons, filing for bankruptcy should be one of the financial tools you are considering and rectifying your financial predicament. Careful planning and knowing all your options will be critical in obtaining the 30 best outcome for your particular financial situation through the use of filing either Chapter 7 bankruptcy or Chapter 13 bankruptcy of the bankruptcy code. As always, is important to always seek the advice of a knowledgeable bankruptcy attorney, but it’s also just as important to be able to have a basic understanding of bankruptcy and how you can use it to remedy your financial hardship due to the coronavirus.
Joseph F. Botelho, Esq
BOTELHO LAW GROUP
901 Eastern Ave.
Fall River, MA 02723