If you're one of the millions of Americans who has been financially impacted by the COVID-19 pandemic, you may be struggling to pay your bills. In other cases, you may already have stopped paying certain bills in order to free up cash for others. For those whose monthly costs are likely to exceed their income for the foreseeable future, bankruptcy may be one solution. Read on to learn more about Chapter 7 and Chapter 13 bankruptcy to see whether these may be an option for COVID-related financial pressures.
Chapter 7 Bankruptcy
Of individuals and couples who file for bankruptcy, most file for Chapter 7 bankruptcy. This type of bankruptcy discharges certain debts and may require you to liquidate or relinquish assets in exchange for erasing these debts. Most Chapter 7 debtors are allowed to keep their vehicle and their home if they reaffirm this debt or exclude these debts from the bankruptcy estate.
Not everyone can qualify for Chapter 7 bankruptcy; there are income and debt limits, so those who earn more than a certain amount per year (or who have more than a certain amount of debt) may instead be routed toward Chapter 13 bankruptcy.
Chapter 13 Bankruptcy
Chapter 13 bankruptcy is a debt restructuring, similar to Chapter 11 bankruptcy for businesses. In a Chapter 13 bankruptcy, you'll work with the bankruptcy trustee to prioritize your debts and create a monthly budget. You'll then turn over most of your monthly income to the trustee, who will make payments to each of your creditors according to priority. At the end of your Chapter 13 plan (which can usually last anywhere from 3 to 5 years), you'll either be discharged successfully, with your debt reorganized, or unsuccessfully, where you'll either convert your Chapter 13 to a Chapter 7 or explore your other debt relief options.
Which Plan is Right for You?
If you think bankruptcy is a viable way to rid yourself of your COVID-acquired debt for good, it's a good idea to meet with an attorney as soon as possible. Bankruptcy can be complicated, even if your debts are fairly simple, and failing to include a certain debt in your bankruptcy estate or properly notify all your creditors can mean starting back at square one if anything goes wrong. Your bankruptcy attorney can walk you through each of your options and see which can be the best path toward financial freedom.
For more information on bankruptcy law, contact a law office such as Brian R. Cahn & Associates, LLC.