The number of personal bankruptcy filings has fallen dramatically since the coronavirus pandemic began, but with interest rates rising and government relief easing, filing numbers are likely to pick up into this year, experts say.
“I’ve had more calls in the last few weeks than in the previous six months,” said Charles Juntikka, a New York-based bankruptcy attorney.
Bankruptcy attorney David Leibowitz, head of Chicago-based Lakelaw, said his firm has “already seen an approximately 25% increase in filings in the Chicago area in the past two months.”
The variety of government stimulus programs, improved tax credits and protections against evictions and loan foreclosures introduced in the past two years have reduced the number of bankruptcy filings.
However, Juntikka suggests community lockdowns and general Covid malaise could also be a factor. “It’s hard for people to face the fact that they have to file a file,” he said. “It takes emotional energy and they feel guilty about it.
“For every person I help, there are four or five out there who are unwell.”
Bankruptcy may feel like a rock bottom for financially strapped Americans, but it’s also a fresh start and an opportunity to step out of a hole that for many seems only to get deeper.
It’s not an easy process. A bankruptcy filing stays in your credit history for 10 years and makes it difficult to get a loan or mortgage.
“If you can pay your debts outside of bankruptcy, you should do that,” said Leibowitz, former chair of the American Bankruptcy Institute’s Consumer Bankruptcy Committee. “However, if your wages are being garnished, your car has been impounded and you are being hunted by collection agencies, bankruptcy may be inevitable.”
Once you have decided that bankruptcy is your best option, your first decision is whether to hire an attorney to help you through the process. You can sue yourself in the courts, but the cost of mistakes is high.
Under Which Chapter of the Code Should You File? What forms do you need to fill out? What mistakes should you avoid? Bankruptcy law is complex and while you can save money by filing yourself, you could lose a lot more afterwards.
“People don’t do their own dental work,” Juntikka said. “You must consult a lawyer.”
What to do
The bankruptcy process involves a number of steps and procedures that must be followed. The type of bankruptcy filing you choose depends on your circumstances.
Chapter 7 bankruptcy filings, which make up a significant majority of personal filings, can ultimately pay most, if not all, personal debt. Child support payments, tax debts, and student loans are among the liabilities that may remain for applicants. Most of your property will be confiscated and sold, although there are some exceptions such as B. Balances in Retirement Accounts.
To qualify for Chapter 7, you must pass a means test. Essentially, your income must be less than the median income in the state where you are applying. Otherwise, you must file under Chapter 13 of the Code.
In this situation, some unsecured debt can be forgiven and you may be able to keep some personal property, but essentially a debt repayment plan is drawn up, which typically runs over a five-year period.
Here are the steps you need to take when filing for bankruptcy:
- Gather the required documents, including tax returns, payslips, bank, broker, and retirement account statements, appraisals of real estate and other assets you own, vehicle registrations, and any other documents related to debts or assets you own.
- All bankruptcy trustees must complete a credit counseling course both before and after filing. The fee is usually less than $50 and can be waived if you are unable to pay it.
- Complete and print the appropriate bankruptcy forms, receive your filing fee ($338 for a Chapter 7 filing in federal court), file the forms in court, and submit the required documents to your appointed bankruptcy trustee.
- Join the meeting – probably online – of your creditors with your trustee. It takes place about a month after submitting your case.
All of these steps are essential, and working with a lawyer can help ensure you don’t make mistakes.
what not to do
The biggest mistake people make when filing for bankruptcy is trying to outsmart the system. All of your assets can be confiscated in a bankruptcy and failure to disclose them fully could result in criminal charges
Just ask tennis player Boris Becker, who is currently facing jail time in the UK for hiding assets. Do not transfer property to family or friends before submitting. It gets scraped back.
Also, do not exhaust your credit resources before applying. The court will not approve. Never use retirement account funds to pay off debt.
“Truth and transparency are critical to the bankruptcy process,” Leibowitz said. “Honest debtors get a fresh start, while dishonest debtors may face jail.”
What to do after bankruptcy
Declaring bankruptcy can feel like the ultimate failure, but there is life after bankruptcy. Leibowitz advises clients to take the following steps to get their lives back on track:
- Set a budget that you can stick to.
- Open a savings account and save a month’s income to create a financial cushion for unexpected expenses.
- Get a secured credit card and only use it for expenses you can pay at the end of the month.
- Pay your rent and bills on time.
- Check your credit report regularly to make sure you have no outstanding bankruptcy debt on your profile.
If you follow a disciplined plan, you can quickly improve your credit profile and even be eligible for a Federal Housing Administration mortgage in as little as three years.
“There is such a stigma associated with bankruptcy,” Leibowitz said. “But the idea of rehabilitation and forgiveness is burned into our constitution.
“Bankruptcy can give people a second chance.”