The economic impact of COVID-19 has left millions of American families and businesses facing difficult and unprecedented financial situations. First-time U.S. unemployment claims have hovered above 800,000 every week since the U.S. economy shut down in March.
COVID-19’s Impact on Consumers and Businesses
Housing and non-housing consumer debt plummeted during the pandemic. According to the Federal Bank of New York’s quarterly report, credit card balances fell by $76 billion in the second quarter reflecting a decline in consumer spending due to COVID-19 and social distancing measures. Non-housing debt, including credit card, auto loan, student loan, and other debts, saw a $86 billion drop – the largest decline in the report’s history.
Although consumer debt decreased for American’s nationally, experts said that financial protections passed by the federal government may be hiding the true financial distress of many American families and individuals.
Joelle Scally, Administrator for the Center for Microeconomic Data at the Federal Reserve Bank of New York, said in a statement that the temporary relief measures, such as the CARES Act, may “mask the very real financial challenges that Americans may be experiencing as a result of the COVID-19 pandemic and the subsequent economic slowdown.”
Businesses suffered major losses as result of the economic shutdown. A report published by the National Bureau of Economic Research found that the number of active business owners “plummeted by 3.3 million or 22 percent over the crucial two-month window from February to April 2020.”
African American business owners had the largest decline, dropping 1.1 million in February 2020 to 640,000 in April 2020. The number Latinx business owners decreased 32% from February to March. Asian business owners suffered losses of 26% and immigrant business owners experienced loses of 36%.
Filing for Bankruptcy During COVID-19
Before you file for bankruptcy, it is crucial to understand the protections entitled to consumers and businesses under the CARES Act — a $2 trillion relief package from the federal government and signed by the President in March 2020. The CARES Act sent stimulus checks to Americans and enacted protections against evictions, foreclosures, and federal student loans.
Under the CARES Act, borrowers with federally-backed mortgages are eligible for mortgage forbearance. Individuals with single-family mortgages are able to write to their mortgage servicer requesting forbearance for 180 days because of difficulties related to the COVID-19 pandemic.
Landlords with multifamily mortgages are provided 30 days of forbearance with the option to extend for an additional two 30-day periods. These borrowers cannot charge any fees or penalties related to rent nonpayment, or late payment, for any tenants on properties funded by multifamily mortgages. More information on mortgage forbearance, foreclosure moratorium, and eviction protection can be found here.
Major banks and credit card issuers, including Chase and Citi, released plans during the pandemic of how they plan to assist customers. For example, in some situations, cardholders may be able to avoid late fees, skip payments, or receive lower interest rates.
Additionally, receiving a stimulus check from the federal government will not affect your eligibility to file under either Chapter 7 or Chapter 13. If you file for Chapter 13 bankruptcy, you will not have to turn your stimulus check over to your creditors. If you are currently in Chapter 13 bankruptcy and are experiencing financial distress due the COVID-19 pandemic, you are able to request a modification of your Chapter 13 plans, including by extending your payments for up to 7 years.
Section 341 Meeting of Creditors
When an individual files for Chapter 7 bankruptcy, a 341 meeting takes place about a month after. The meeting, known as a “meeting of creditors,” requires the individual who filed for bankruptcy to confirm their identify, assets, property, and income to ensure the bankruptcy paperwork is accurate.
In response to COVID-19, the U.S. Trustee’s office will be conducting the meetings remotely by telephone or video appearance “to all cases filed during the period of the President’s “Proclamation on Declaring a National Emergency Concerning the Novel Coronavirus Disease (COVID-19) Outbreak issued March 13, 2020, and ending on the date that is 60 days after such declaration terminates,” according to the U.S. Department of Justice’s website.
In particular cases, the U.S. Trustee may approve a request by a trustee to have the 341 meeting as an in-person meeting in a manner “that complies with local public health guidance” and “if the U.S. Trustee determines that an in-person examination of the debtor is required to ensure the completeness of the meeting or the protection of estate property,” the government website states.
Waiver of Original Signature Requirement
Due to the COVID-19 pandemic, some bankruptcy courts have temporarily waived the rule that requires bankruptcy attorneys to get “wet signature” from their client on the petition for bankruptcy.
During this unprecedented time, bankruptcy courts may also modify additional rules and guidelines, such as clerk office hours, courthouse entry protocols, signature requirements, filing deadlines, and more. Be sure to check your local bankruptcy court for details.
FAQs about Bankruptcy & COVID-19
Can I still file if my court is closed?
Yes, you can stile file for bankruptcy by submitting your forms. If your court is closed and in-person filing has been suspended, there may be other ways to submit your documents. Some courts have allowed debtors the ability to file by email, mail, fax, or by uploading their forms to the court’s website. Visit your court’s website to learn specific information about how your court is handling form submissions.
I have a loan and I am worried that I won’t be able to make my monthly payments. What can I do?
It is important to contact your lender directly. They may be able to provide you temporary relief based on your financial situation. Banks and credit unions have more flexibility to work with borrowers affected by the COVID-19 pandemic under the CARES Act.
How does the CARES Act help small businesses who want to file for bankruptcy?
The Small Business Reorganization Act was created to add subchapter V – a less expensive, quicker process as opposed to filing for traditional Chapter 11 protection. The provision applies to small businesses with debt amounts up to $2.725 million. The Act allows small businesses to retain control over their business operations while reorganizing.
I am in Chapter 13 bankruptcy and I don’t know if I will be able to complete the Chapter 13 process. What do I do?
The CARES Act enables protections for individuals and families currently in Chapter 13 who are experiencing financial hardship due to the COVID-19 pandemic. If this applies to you, you can request a modification of your Chapter 13 plans, such as by extending your payments for up to 7 years.
If I receive a stimulus check from the federal government, will it impact my ability to file for bankruptcy?
No. Receiving a stimulus check from the federal government will not affect your eligibility to file under either Chapter 7 or Chapter 13. If you file for Chapter 13 bankruptcy, you will not have to turn your stimulus check over to your creditors.
How can Lemberg Law help me?
If you’re thinking of filing for bankruptcy, a bankruptcy attorney is vital to both preparing your bankruptcy schedule and making sure you are represented in the many various matters that arise from filing bankruptcy.
The attorneys at Lemberg Law realize how emotionally difficult this process can be, and will stand by you throughout the process, ensuring that you will receive a fresh start so you can move on with your life. Call us at 475-277-2200 or use our case evaluation form to receive a free, no-obligation consultation from our experienced legal team.
About the Author:
Sergei Lemberg is a lawyer whose practice focuses on consumer law, class actions and personal injury litigation. He has been repeatedly recognized as the “most active consumer attorney” in the country. In 2020, Mr. Lemberg represented Noah Duguid in the United States Supreme Court in the case entitled Duguid v. Facebook. He is the author of Defanging Debt Collectors, a book that teaches consumers how to battle debt collectors and win.