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PRO’S AND CON’S OF BANKRUPTCY CHAPTER 7 DURING COVID-19

Bankruptcy Law - Jacobowitz and GubitsWith many families already struggling to pay their bills, the Coronavirus pandemic is likely to result in a record high number of bankruptcy filings[1]. Even with direct payments from the federal government, a lot of people will be forced to borrow heavily from credit cards to pay daily living expenses, or miss payments for car loans, mortgages, or other consumer debts.

In the right circumstances, filing for bankruptcy under Chapter 7 of the Bankruptcy Code will provide the relief you need to rebuild your financial future. Many bankruptcies result from medical debt or excessive spending on credit cards to keep up with the cost of living[2].

There are negative impacts to filing for bankruptcy, however, so the decision to file needs to be discussed in detail with a bankruptcy attorney who understands the benefits and drawbacks. The attorneys at Jacobowitz & Gubits, LLP, have the experience to take you through the process as painlessly as possible.

Benefits to filing for bankruptcy

  1. A clean slate – Filing for bankruptcy will give you the opportunity to work towards a more secure financial future after an unexpected illness or any other emergency that resulted in debts that are no longer affordable.
  2. Stops call from creditors – Upon filing for bankruptcy, an automatic stay comes into place that will end the calls from debt collectors or enforcement actions for loans.
  3. Prevents foreclosure sales – All foreclosure actions will stop upon filing for bankruptcy, saving what might be your most valuable asset from your creditors.
  4. Stops repossessions – If you are behind on a car or truck loan, filing for bankruptcy will stop any attempt to repossess your vehicle.
  5. Stops wage garnishments – If you are having money deducted from your paycheck to satisfy debts, filing for bankruptcy will stop those garnishments, giving you to flexibility to decide how to spend your paycheck.
  6. Protects your credit rating – Missed payments to debts in your name will continue to lower your credit rating, even if your former partner agreed to pay those loans, for example. Filing for bankruptcy will largely wipe out those debts, allowing your credit score to rebuild over time.

Negatives against filing for bankruptcy

  1. Stays on your credit report for up to 10 years – Filing for bankruptcy will result in a negative mark on your credit report for up to ten years, but this will not necessarily stop you from getting a mortgage or credit card;
  2. Higher interest rate on credit cards or auto loans – Generally, future credit cards or auto loans will be offered at a high interest rate and will have low limits;
  3. May prevent you from obtaining a mortgage – You will be ineligible to obtain a home mortgage for at least three (3) years, but financing may be available after that, albeit with a higher interest rate;
  4. May limit you from renting some apartments – Some corporate landlords may be less willing to rent an apartment if they run credit checks;
  5. Not all debts are dischargeable – Bankruptcy does not discharge unpaid taxes or child support obligations.

Deciding whether to file for bankruptcy can be a very difficult decision. Consulting with an attorney able to balance the benefits and drawbacks can help in making that decision. Jacobowitz & Gubits, LLP is here to guide you through the process and we are now offering remote meetings for your safety during COVID-19.

[1] https://finance.yahoo.com/news/coronavirus-just-doubled-the-risk-of-mass-bankruptcies-123827521.html

[2] https://www.fool.com/the-ascent/research/personal-bankruptcy-statistics/

This is not intended to be legal advice.  You should contact an attorney for advice regarding your specific situation.  

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