Before COVID-19, you might have been steadily building your wealth, growing your business, or simply saving for a vacation. Or, perhaps, you were struggling for years to make ends meet. No matter what situation you were experiencing before the pandemic, you might now be one of millions who have lost faith in their financial future.
Amidst quarantines, layoffs, and nationwide business shutdowns, you may be facing an unprecedented level of debt and looking for a way out. While bankruptcy was never something you had intended for yourself or your business, you may be starting to believe it is your only option.
But bankruptcy is not a symbol of defeat or a death sentence for your credit score. Even older than the U.S. Constitution, bankruptcy has served as a form of salvation for millions of people and businesses who have fallen on hard times.
If you’re considering filing bankruptcy during the pandemic, you aren’t alone. Here are 5 reasons why now might be the right time to file.
1. Bankruptcy Courts Are Open and Accepting New Cases
While the legal system has experienced delays and operational changes because of the pandemic, you can still successfully file bankruptcy. You may consider filing sooner rather than later to mitigate potential delays. Additionally, no one can be sure of the state of the legal system as the pandemic develops. Filing now may prevent you from losing the opportunity to file later.
Bankruptcy Courts have also relaxed certain requirements to help people complete the process without risking their health. For example, many courts are accepting electronically reproduced signatures via faxing and photocopying. They are also conducting hearings over the phone and video chat. Both of these adjustments allow filers to complete most—if not all—of the process from the safety of their homes.
2. The SBRA Helps Small Businesses Use Chapter 11
The Small Business Reorganization Act (SBRA) took effect in February of 2020, adding Subchapter V to Chapter 11 bankruptcy. Before the SBRA, Chapter 11 was a practical option only for large businesses and corporations. Small businesses could not afford the associated costs, and creditors had too much power, effectively denying repayment plans that could save businesses from financial ruin.
Subchapter V, however, allows small businesses to:
- Propose their own repayment plan
- Obtain plan approval from the court without approval from creditors
- Avoid the time and costs associated with creditors’ committees and disclosure statements
- Benefit from a trustee who is motivated to restructure debt rather than liquidate assets
- Reorganize and reduce debt without going out of business
These are just a few of the benefits a small business owner can derive from Subchapter V. For more information, visit our blog about the SBRA and how it could impact your company.
3. The CARES Act Temporarily Improves Bankruptcy
The CARES Act, passed by Congress to help individuals and businesses survive the financial ramifications of COVID-19, includes several provisions that modify bankruptcy for one year.
These provisions are as follows:
- Federal aid provided by the CARES Act is NOT included in bankruptcy matters (e.g. the Chapter 7 means test or Chapter 13 disposable income calculations).
- Those with open Chapter 13 cases can extend their repayment plans up to 7 years after the original filing if they experience COVID-19-related material hardship.
- The debt threshold for Subchapter V of Chapter 11 bankruptcy is increased from $2,725,625 to $7,500,000, allowing more companies to qualify as small businesses and file under Subchapter V.
Because of these temporary provisions, bankruptcy is friendlier to both individuals and businesses during the COVID-19 pandemic. The provisions will last until March of 2021.
4. Companies Can Still Collect Debt During the Pandemic
Unfortunately, COVID-19 has not stopped creditors and collection agencies from pursuing drastic collection tactics. Many have even taken CARES Act stimulus checks directly from debtors’ bank accounts. While some individuals and businesses benefit from a temporary freeze of evictions and foreclosures, no one can be sure of how long these protective measures will last.
If a collection agency takes you to court and obtains a judgment against you, you could lose your wages, car, or home. Bankruptcy, however, triggers an automatic stay, which halts all collection actions for the duration of your case. The automatic stay provides instant relief for filers and the opportunity to regain control over their finances.
5. We Cannot Count on Future Government Aid
While Congress has discussed implementing additional forms of relief like the CARES Act, no one can accurately predict what this will look like, when it will arrive, or who it will benefit. Furthermore, relief like stimulus checks, grants, and loans are short-term solutions to lasting financial hardship. Bankruptcy, on the other hand, can permanently reduce or even eliminate unmanageable debt, helping individuals and businesses build the long-lasting financial foundations they need.
Come to The Buchalter Law Group for Personalized Assistance
If you are still unsure whether bankruptcy is right for you, please do not hesitate to get into contact with our firm. We have decades of experience helping people navigate and overcome financial adversity. Whether your creditor is a private lender or the federal government, we have the knowledge and experience needed to fight for your future—a future that is debt-free.