Are you laid off because the government has closed down large parts of the economy to make sure people are sheltering in place? Or maybe you’re still working, but your finances have taken a big hit. You are not alone. Unemployment levels have reached highs not seen since the Great Depression. Stories of the computer systems of unemployment offices crashing due to record demand are commonplace. And many businesses are struggling.
Even though your cash flow has been reduced, your creditors still want to be paid. Although states and the federal government have taken temporary measures to prevent evictions and foreclosures, the government cannot alter creditors’ basic contractual rights to get paid without filing for bankruptcy protection. Filing a Chapter 7 or Chapter 13 bankruptcy is a legal solution –in fact, a right—that may be appropriate when you cannot pay your bills.
How Does Bankruptcy Affect your Stimulus Check?
The short answer is that bankruptcy should not affect your Stimulus Check.
According to the CARES Act (the Coronavirus Aid, Relief, and Economic Security Act), Federal coronavirus-related payments are not considered income under Chapter 7 or Chapter 13 of the Bankruptcy Code. These payments are not considered when calculating the Means Test for Chapter 7 or determining disposable income for Chapter 13. Furthermore, individuals and families may modify their confirmed Chapter 13 plans—extending payments for up to seven years from the filing of the case due to direct or indirect material financial hardship caused by the coronavirus pandemic.
How Big Will Your Stimulus Check Be?
Most people will receive $1200 per adult and $500 per child under age 17. These amounts are gradually reduced for single people making more than $75,000 and married people earning more than $150,000. Your eligibility to receive a Stimulus Check does not depend on whether you are employed or file tax returns. Filing bankruptcy should not affect your right to receive your Stimulus Check.
Now May be the Best Time for You to Consider Bankruptcy – Here’s Why…
Since your Stimulus Check is not considered income for Means Test purposes for filing a Chapter 7, a decline in your income because you are laid off or furloughed may make you eligible to file Chapter 7 bankruptcy, even when in the past you earned too much to qualify for Chapter 7 bankruptcy relief. To qualify to file a Chapter 7 bankruptcy a person’s historic income has to pass the Means Test.
How do you pass the Means Test?
Essentially, the Means Test requires you to average your monthly income over the six calendar months preceding the month you file your case. If your average monthly income during that six-month time period is less than average income for the size of your household where you live, you will pass the Means Test, which means there is no presumption that you are abusing the Chapter 7 process. Once you file your case and pass the Chapter 7 Means Test, the income you earn in the future after you file is not relevant to calculating and passing the Means Test. Returning to work after you file bankruptcy does not affect the Chapter 7 Means Test.
What do you if you cannot pass the Means Test?
You will likely need to file a Chapter 13 bankruptcy and agree to turn over all of your disposable income (extra income after you’ve paid your routine living expenses) for the next 60 months to a bankruptcy trustee to be used to repay your creditors. In contrast, in a Chapter 7 bankruptcy, your creditors do not get paid from your disposable income; if you own valuable assets that cannot be protected by bankruptcy exemption laws, those assets would be sold and the sale proceeds used to pay your creditors. However, the vast majority of Chapter 7 bankruptcy cases are “no-asset” cases, which means that none of the debtor’s property is sold and unsecured creditors do not get paid anything.
What are unsecured creditors? Unsecured creditors are creditors who own debts that are not backed by liens on a debtor’s assets—for example credit card debt, medical bills, student loans, and cash advances. They are owed money, but they don’t have a tangible item that they can reclaim and sell to recoup some of what they are owed. Secured creditors, in contrast, have liens on the debtor’s assets that allow the creditor to sell the property should the debtor stop paying what is owed—such as home mortgages and car loans. Most of the time, a bankruptcy does not wipe out debt that is secured. Liens that are properly obtained by a creditor survive the Chapter 7 bankruptcy process. Consequently, if a person wants to keep their property that is subject to a lien, such as a car or house, they must continue to pay this debt after filing a Chapter 7 bankruptcy.
What Do I Need to File Bankruptcy?
Regardless of whether you file Chapter 7 or Chapter 13 bankruptcy, your attorney will need a significant amount of information about your financial situation to prepare the documents that will be filed in your case. At Lemmen and Lemmen PLC, we gather this information by having you complete a form in an online portal that collects information regarding your assets, your debts, your income and expenses. You will also need to supply primary financial documents such as six months of paystubs, titles to vehicles, proof of automobile and homeowner’s insurance, automobile leases and loan documents, recorded mortgages and deeds, bank statements for the past three months, tax returns for the last two years, recent retirement account statements, judgments of divorce when applicable, and copies of past due bills.
Gathering and organizing these financial documents typically requires more time and energy for the prospective bankruptcy filer than any other part of the process. While the task may seem like overwhelming busy work to some, it is essential to the bankruptcy process. The contents of these financial documents dictate what appears in your bankruptcy court filing. An average consumer bankruptcy routinely requires filing more than sixty pages of information regarding the person’s assets, debts, income and living expenses with the bankruptcy court. Debtors must sign these documents in multiple locations under penalty of perjury verifying that the information contained in the documents is true and correct to the best the debtors’ knowledge and information. Consequently, it is in the debtor’s best interest to ensure that the documents filed with the court are correct.The best way to do this is to provide your lawyer with all the financial documents he or she requests.
In West Michigan, the bankruptcy court in Grand Rapids is an essential service that has not closed down. Courts are holding hearings by telephone or by video conference services. You can still file for bankruptcy protection during the lockdown, which is good news for many people who are experiencing a negative financial impact of this global pandemic. The right to file a bankruptcy can offer a fresh start to those who are weighed down by unmanageable debt.
Lemmen & Lemmen is a bankruptcy attorney serving Grand Rapids, MI and the surrounding area. To find out more about filing bankruptcy during COVID-19, contact Lemmen & Lemmen at (616)837-6221 or schedule a private consultation below.