bankruptcy and coronavirus covid-19

Bankruptcy and Dealing with Debt During & After the COVID-19 Crisis

bankruptcy and coronavirus covid-19

The COVID-19 pandemic is a public health crisis that has impacted the lives of millions of people around the world and in California. To try to control the spread of the virus, many cities and multiple states have issued stay-at-home or shelter-in-place orders and have ordered nonessential businesses to close. While slowing the economy is necessary to prevent further spread of the disease and to flatten the curve so that the health care industry won’t collapse, it has also left millions of people facing job losses and financial devastation. Here are some of the options that are available to people to help them to make it through the COVID-19 crisis and to gain financial footing once the crisis ends.

 

Mortgage and Other Types of Relief

As millions of Americans have lost their jobs, some major banks have announced that they will offer homeowners some mortgage relief. This relief varies and depends on the lender. For each bank or lender, the onus is on the borrower to take the first step to make contact and ask about the available options. Here are some of the programs that are currently being offered (updated as of 3/28/20):

Ally Bank says that it will defer payments for mortgagees for up to 120 days without charging them late fees or finance fees.

Bank of America has also stated that it will offer payment deferrals to mortgagees for mortgages that it holds and will pause evictions and foreclosures.

Chase says that it will offer assistance to people who are struggling with their mortgages but does not state what type of assistance will be provided. It encourages people to call the bank for more information about the relief that might be available to them.

Wells Fargo states that it will offer payment deferrals and fee waivers upon request for mortgages, auto loans, credit cards, small business loans, and others.

Some other banks and lenders are also offering relief to homeowners who have lost their jobs because of the COVID-19 pandemic. You should contact your lender to find out whether any programs might be available to you. Many lenders, including Capital One, Santander, TD Bank, Hyundai, and others, are also offering payment assistance to people who are struggling to keep up with their auto loan and credit card payments. Check with your lender for more information about the options that you might have.

 

Coronavirus Tax Relief

The Department of the Treasury, the Department of Labor, and the Internal Revenue Service have all announced tax relief measures during the COVID-19 pandemic. The tax filing deadline has been changed from April 15 until July 15, regardless of the amounts that people might owe. If you are expecting a refund, however, you should go ahead and file your income tax forms to receive what you are owed.

 

The Franchise Tax Board has announced similar extensions for California tax filers here:  https://www.ftb.ca.gov/about-ftb/newsroom/news-releases/2020-3-state-postpones-tax-deadlines-until-july-15-due-to-the-covid-19-pandemic.html

 

Government Stimulus Checks

Another part of the $2.3 trillion stimulus bill that was passed by Congress and signed into law by the president is $250 billion of direct payments to people. Under this plan, individuals with an Adjusted Gross income (AGI) $75,000 per year or less will receive stimulus checks of $1,200. Married couples who make a combined total of $150,000 or less will receive $2,400.

The payments start to phase out for individuals and couples who make more than those amounts. Individuals with an AGI of at least $99,000 will receive nothing, and married couples with a combined AGI of at least $198,000 will also receive nothing.  In addition to the stimulus checks to individuals or married people, those who have children who are younger than age 17 will also receive checks of $500 per child.

The stimulus checks will be based on the last tax return that you filed. If you did not file in 2018, you should go ahead and file your 2019 return now. Similarly, if you made too much to qualify for the 2018 tax year but made a qualifying amount in 2019, it is also a good idea to go ahead and file your tax return now. People who owe back taxes or are past-due on their student loans will still be eligible for checks.  If you owe back child support, however, your check may be reduced or used to pay towards your arrears.

 

Here is a link to a New York Times article with more information: https://www.nytimes.com/article/coronavirus-stimulus-package-questions-answers.html?referringSource=articleShare

 

Is Bankruptcy an Option?

During this period of economic upheaval, many families will be facing difficult financial decisions that they never thought would face them.  Bankruptcy has long been an option for people who are overwhelmed by unmanageable debt and are unable to make their payments. Bankruptcy is a safety net for people who need it.

There are a couple of different types of bankruptcy that might be available to you:

Chapter 7 – This is a type of bankruptcy through which most types of unsecured debts, such as medical bills, credit card debt, and personal loans, can be wiped out. While some of your assets might become a part of the bankruptcy estate, many people can keep most if not all of what they own through the available exemptions.

Chapter 13 – This type of bankruptcy allows people to enter into a court-supervised repayment plan that lasts from three to five years.  Chapter 13 might be a good option for people who do not qualify for Chapter 7 or who need relief to stop a home foreclosure or a car repossession.  For example, a Chapter 13 bankruptcy plan can allow you more time to catch up on your mortgage payments and save your home.

Another important consideration is that, if you are thinking of borrowing money or taking withdrawals from your retirement savings to pay your debts,  bankruptcy may offer a better option.  If the Covid-19 crisis has left you unable to both pay all your bills and provide for your family’s basic living expenses, bankruptcy might be the right solution for you.

If you are in financial distress, you should consult with an attorney to learn more about your bankruptcy options.  During the shelter-in-place orders currently in effect, Shulman Law Offices in San Jose, California is offering free consultations by phone or Zoom conference to residents of Santa Clara, Santa Cruz, San Benito, and Monterey counties. Click here to contact Ike Shulman for more information.


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