Toledo bankruptcy attorney Scott France offers some insights and thoughts that debtors may want to consider before filing for bankruptcy relief.

FUTURE DEBTS ARE NOT INCLUDED IN A BANKRUPTCY

The filing of one’s bankruptcy case can be compared to a specific moment in time.  At this particular moment, all things are still and we know certain answers that are normally fluid.  For example, at one moment we may know our specific bank account balances, but in 1 hour this amount may change due to various types of account activity. This concept of a “moment in time” is critical to the timing of your bankruptcy filing.

As a general rule, a filing for bankruptcy relief covers certain listed debts that are included in your voluntary petition.  While the amount of a past vehicle repossession may not change often, other debts such as growing medical bills may change often as you undergo additional test and procedures.  If you are accumulating medical debt, the kind that is expected to continue growing in the foreseeable future, it may be wise to discuss your situation with a qualified local bankruptcy attorney. 

Example:  Dee has about $10,000.00 in medical debt and is on a fixed monthly income.  She has a costly medical procedure scheduled for next month, of which her insurance will only cover a portion.  If Dee should file her bankruptcy now, her forthcoming medical bills will not be included in this bankruptcy filing, thus impairing her “fresh start.”

JOB LOSS DOESN’T NECESSARILY MEAN THAT YOU QUALIFY FOR CHAPTER  7.

The other day I received a call from a young lady inquiring about chapter 7 bankruptcy.  Chapter 7 bankruptcy is commonly referred to as liquidation and for some individuals Chapter 7 bankruptcy may eliminate credit card debt as well as many other types of unsecured debts.

During the phone call, the young lady described how her household income has dropped dramatically following a job loss due to the COVID-19 pandemic.  Before the COVID-19 pandemic, the young lady and her husband had a combined gross household income of $100,000.00/year, which was more than enough to care for the couple’s young baby.

While everyone’s situation is unique, sometimes debtors encounter a bump in the road during the bankruptcy process.  Before filing for Chapter 7 bankruptcy, your experienced bankruptcy attorney will review your household financials and determine if you meet the eligibility requirements for a Chapter 7 bankruptcy.  The two primary eligibility requirements pertain to the household’s budget analysis and the Means Test

The budget analysis looks at your household’s net monthly income, including non-traditional sources such as food stamps, penions, child support, and social security benefits. This net monthly income is compared to your household’s monthly expenditures, some actual (i.e. your mortgage payment) and others more aligned with regional Government standards of living established by the US Department of Justice.  When a primary bread-winner in one’s household loses her job, it becomes more likely that the budget test will show no disposable income left over to pay creditors.

However, Means Test may prove to be a different story.  The Means test looks at the household’s gross monthly income (before taxes) for the preceding six (6) calendar months.  This cumulative amount is then divided by six, for a monthly average. While this calculation excludes social security benefits, it does take into consideration sources such as food stamps and pension income.  In our example, the young lady’s recent job loss is indeed a financial hardship in the present (budget analysis), however the household’s trailing six month average has not yet begun to decline.  It is possible that this family may need to wait a few months before any possible Chapter 7 eligibility becomes an option.  The best course of action is to have an early discussion about your situation with an experienced bankruptcy attorney.

CONSIDER ALL OF YOUR OPTIONS, INCLUDING BANKRUPTCY RELIEF

While the COVID-19 pandemic presents many challenges to all of us, it is important to carefully consider your financial options before simply filing for bankruptcy relief.  While bankruptcy may offer valuable relief from one’s creditors, it is a step to be taken only after careful evaluation of all available opportunities.  Below are just a few strategies and resources to consider while you are also weighing the pros and cons of filing for bankruptcy relief:

  1. Do you have enough savings to get through the situation?  A few careful tweaks to one’s budget may be enough in some situations.
  2. Will any of your creditors offer some type of relief.  A common business saying is “Ask for the order.”  If you want something, then ask for it.  While the creditor may deny your request, it is almost certain that they won’t offer anything if not asked first.   
  3. Are there any appropriate funding sources available to you?  While it is still early in dealing with the COVID-19 pandemic, we are starting to see rate reductions in the marketplace.  Could your current situation be resolved by a modest loan until you are back on your feet?  However, remember that what you ask for now, you may still have after the COVID-19 pandemic.  Most repayments will continue post COVID-19.
  4. Is debt consolidation appropriate for your situation?  This is a complex one that should only be sought via local debt consolidation companies with a solid BBB reputation.  Your reputable local bankruptcy attorney can help you compare bankruptcy and debt consolidation and provide you with the information needed to make an informed decision.

In sum, bankruptcy relief may be appropriate in many situations.  Many debtors find themselves meeting the eligibility requirements for Chapter 7 bankruptcy. Each debtor has a unique fact pattern to be considered.  It is critical that one makes a fully informed decision before choosing which type of financial relief is right for them.

Related Article:  Dealing With Debt During COVID-19

by: John Skiba, Arizona Bankruptcy Attorney