The novel coronavirus pandemic has upended millions of people’s lives. Many Californians have lost their jobs because of COVID-19 and are barely scraping by, trying to keep their heads above water. If you are unemployed because of the pandemic, you may be struggling to pay your bills and debts, and you may be facing eviction or foreclosure.

Many people who have lost their jobs during the pandemic have also lost their health insurance, leading them to amass medical expenses that they cannot pay if they contract COVID-19. Fortunately, the bankruptcy process is available to help you to get a fresh financial start by wiping out many types of unsecured debts that you are unable to pay. While bankruptcy is not right for everyone, it is a good solution for many people who are overwhelmed by unmanageable debt.

How bankruptcy works

How bankruptcy works for consumers depends on what type of case will work best for you. The two primary types of consumer bankruptcy cases are Chapter 7 and Chapter 13 bankruptcy. Chapter 7 bankruptcy is the most widely-used type of bankruptcy because a person’s debts can be discharged in as little as three months after the petition is filed. However, not everyone will qualify for Chapter 7 bankruptcy, and people with certain types of debts may be better off filing for protection under Chapter 13.

To file for Chapter 7 bankruptcy, you will have to pass the means test. The means is an “ability to pay” test which takes a look at your total income and expenses to determine whether you would have sufficient income left over to repay your debts in a Chapter 13 bankruptcy case. If you do not, you can file for protection under Chapter 7.

Before you can file for bankruptcy, you must complete a pre-bankruptcy credit counseling course from an approved provider. This course is short, and it is available online. When you complete the course, you will receive a certificate of completion that you will need to print and save. This certificate must be filed with your petition when you file for bankruptcy.

Before you file your petition, you will also need to review your assets, debts, and income and expenses with your attorney. You should make sure you disclose all of this information, which is required by the law.  Any debts that you fail to list in your bankruptcy petition may not be discharged.

Once you file a Chapter 7 petition, the bankruptcy court will automatically issue a stay on collections. This stops your creditors, excluding support obligations, from engaging in further collection activities against you, including sending you letters, calling you, suing you, garnishing your wages, or collecting on judgments. There are exemptions (protections) available that protect many types of assets from bankruptcy court liquidation during the process. If your assets are not exempt, they may be sold by the bankruptcy trustee to repay your debts,  In many cases, people who file for Chapter 7 bankruptcy can keep most or all of their assets.

After your Chapter 7 bankruptcy case is completed, most types of unsecured debts, including credit card debts and medical bills, will be discharged, although student loan debts are normally not discharged. A discharge of your debts means that you will no longer be obligated to pay them.

Chapter 13 bankruptcy does not involve a liquidation of any assets you wish to keep. Instead, people who file for protection under Chapter 13 will repay some or all of their debts during a repayment period that normally lasts for three or five years. Chapter 13 is particularly helpful for people with non-exempt assets, or debts which will not be fixed in Chapter 7, such as recent tax debts, past-due mortgage payments or missed car loan payments. To qualify for Chapter 13 bankruptcy, your total liabilities cannot exceed certain dollar limits. Y

ou must also have a regular income source that is sufficient for you to make your required payments. If you complete the Chapter 13 repayment plan, your remaining unsecured debts will be discharged, although student loan debts are normally not discharged.

When is bankruptcy a good option for people who are unemployed?

Many people hesitate to file for bankruptcy because of the stigma that surrounds it. However, it is important to understand that the bankruptcy laws are in place for a reason. Unexpected financial circumstances can affect nearly anyone. The COVID-19 pandemic has led to a large increase in folks that have suddenly and unexpectedly lost their jobs, and an economic downturn that has affected almost everyone.

While the Congress passed the CARES Act in March to provide temporary relief to people who are unemployed because of the pandemic by giving them an extra $600 per week in unemployment benefits and placing a temporary moratorium on evictions, those additional protections were allowed to expire by Congress on July 31st. Congress continues to debate renewing these benefits at some level, but there is no guarantee that they will be passed.

This means that many people have fallen off a proverbial financial cliff and are facing real threats of losing their homes and experiencing a substantial drop in their incomes. Others who have been sickened by the virus and have required hospital care have received medical bills ranging up to hundreds of thousands of dollars. These types of situations cannot be blamed on the people who are experiencing them. If the pandemic has left you unemployed and facing substantial debt or a potential eviction or foreclosure, filing for bankruptcy might help you to find a way out. You should not feel ashamed of encountering financial difficulties. Millions of people in the U.S. are facing similar problems.

How will bankruptcy affect you?

If you file for bankruptcy protection, your creditors will have to immediately stop their collection activities. This means that you should not receive threatening calls or letters. If a lawsuit has been filed against you to collect on your debts, those proceedings will be frozen. Wage garnishments for unsecured debts will also stop. Bankruptcy can help to eliminate your obligation to repay your discharged debts. This means that you might get out from under the weight of huge medical bills and credit card debts so that you can move forward with your life.

While bankruptcy will affect your credit, many people find that they can rebuild their credit after bankruptcy by prudently getting new credit cards and paying them off every month. You can potentially be approved for a mortgage loan two years after your bankruptcy case is completed.

California at the Shulman Law Office

The COVID-19 pandemic has wreaked havoc in the lives of millions of people. If you have lost your job or had your income reduced and are unable to pay your bills, bankruptcy may be the best option available for you. The Shulman Law Office provides knowledgeable and compassionate representation to people who are struggling under the weight of their debts, and we can provide you with some guidance about whether bankruptcy might be a good choice for you. Email or call us today at (408) 297-3333 for a free, confidential consultation.