Legal TopicsChapter 7 and Chapter 13 Bankruptcy during Coronavirus COVID 19 Corona Virus

Coronavirus is impacting everyone’s financial health.


Financial Challenges Due to COVID 19

People experience financial hardship for a variety of reasons. These range from divorce or separation, illness and medical care, unemployment or underemployment, foreclosure, loss of a business, or family obligations. These days are especially difficult for the average person due to the worldwide pandemic caused by the corona virus, also known as COVID 19.


The Economic Impact

The coronavirus has forced federal, state and local governments to issue stay at home orders. Large parts of the economy have shut down. This has caused people to lose their jobs, close their businesses, temporarily furlough or lay off their employees. People are forced to choose between risking their health and the health of those around them, or feeding their families and keeping a roof over their heads.

We are seeing record numbers of people filing for unemployment benefits, or seek financial assistance through government and SBA loans. There is a rise of food insecurity that has forced people to waiting on long lines at local food banks. The government stimulus checks were just not enough to keep many people afloat during this extended crisis. And we do not even know when the stay at home orders will be lifted so the economy can get started again. People ask, “When can I go back to work?” or “Will it be safe for me to go back to work?” “Will I even have a job to go back to?” or “Will I lose my home once the 90-day grace period has ended?”. The prospect of eviction is frightening. These are indeed scary and uncertain times.


Managing Financial Hardship Through Bankruptcy

The bankruptcy laws were enacted to protect everyone because no one is immune from life’s unexpected circumstances. Therefore, regardless of the reason, whether it was due to the corona virus pandemic, or for any other reason, deciding to file for bankruptcy can be a painful decision. But you are not alone. Your team at the Law Offices of Rachel L. Kaylie are here to guide you in making the decision whether or not to file for bankruptcy. And we stay with you throughout the whole process. We even provide after-bankruptcy services and counseling at no additional fee.


What is Chapter 7 Bankruptcy?

A Chapter 7 bankruptcy discharge means the debtor (the person filing bankruptcy) is no longer required by law to pay those debts that are discharged. The creditors of the bankruptcy debtor must stop all collection action on those discharged debts. This means they cannot take legal action against you, including filing a law suit. And they can’t communicate with you about those debts. That means they cannot harass or threaten you with telephone calls and letters. All of that stops when the bankruptcy petition is filed. This is known as the “automatic stay” and it applies to most creditors. However, the automatic stay does not apply to collecting alimony, maintenance or child support.


What are exemptions?

Exemptions are the assets a debtor can keep, free from the claims of a creditor, even in bankruptcy. Typical examples of exemptions are limited value of equity in a house, certain amounts of cash, household goods and furniture, and a pension, retirement account, or 401K.


What debt will bankruptcy not erase?

You are still obligated to pay money owed for child support and alimony.

Likewise, government fines and most taxes cannot be discharged.

Bankruptcy will not cover a loan that you got by knowingly giving false information to a creditor, if that information was reasonably relied on in deciding to approve the loan. Debts resulting from “willful and malicious” harm cannot be covered.

Student loans owed to a school or government body, including the SBA, are usually not discharged, unless the court decides that payment would be an undue hardship.

Mortgages and other liens which are not paid in the bankruptcy case. However, bankruptcy will discharge your obligation to pay any additional money if the property is sold by the creditor.


Can a married debtor file without the other spouse?

Yes, but your spouse will still be liable for any joint debts. If you file together you may be able to double your exemptions. In some cases where only one spouse has debts, or one spouse has debts that are dischargeable, then it might be advisable to have only one spouse file. If the spouses have joint debts, the fact that one spouse discharged the debt may show on the other spouse’s credit report.


Is it too late to file bankruptcy if I’m being sued or already have a judgment against me?

No. It is almost never too late to file bankruptcy! Assuming that it is a dischargeable debt, you can still get rid of the debt even if a creditor has filed a lawsuit against you or has obtained a judgment for money.


Can I transfer assets out of my name into someone else’s name before filing bankruptcy?

Not unless they are sold for “reasonably equivalent value”. Otherwise it can be recovered as a Fraudulent Transfer. In New York, the “look back” time frame is six years, meaning that any asset transferred out of the name of the person filing bankruptcy must have been transferred more than six (6) years prior to the filing, unless it was transferred for “reasonably equivalent value.” This often happens with the transfer of a house or bank accounts.


What do I do after I get a discharge in bankruptcy?

Once you get your discharge in bankruptcy, then you will need to start rebuilding your credit. There are many ways to do this, and The Law Firm of Rachel L. Kaylie can discuss your various options. Be aware, once you have filed a Chapter 7 bankruptcy and received a discharge, you cannot file another Chapter 7 bankruptcy petition for eight (8) years.

Helpful credit information

The three major credit reporting agencies. You can contact them to request a credit report. You are entitled to one free credit report a year but that report may not contain your FICO score, only the credit information – there is a small fee to obtain a credit report with the FICO score.