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Can I File Chapter 7 For Unemployment?

On Behalf of | Oct 22, 2020 | Bankruptcy

Millions of people in the United States have been impacted by the financial consequences of the COVID-19 pandemic. Unemployment, the death of a family member, and incurring significant medical bills fighting the infection have caused individuals and families throughout the country to deal with a COVID-19 financial hardship. For some individuals, it might be time to consider Chapter 7 for COVID-19 money problems.

If you cannot pay your bills because of COVID-19 or other financial hardship, a Chapter 7 bankruptcy case could be the best way to get out of debt. This article gives you more detail about filing Chapter 7because of COVID-19.

Keep reading to learn more about:

  • What Is a COVID-19 Chapter 7 Bankruptcy Case?
  • Do I Qualify for Filing Under Chapter 7?
  • What Should I Do If I Want to File a Chapter 7 Bankruptcy Case to Get Rid of COVID-19 Debt?

What Is a COVID-19 Chapter 7 Bankruptcy Case?

There are not different types of Chapter 7 for different situations. There is not a COVID-19 Chapter 7 case, nor is there a medical bankruptcy case. People file Chapter 7 to get rid of debts for many reasons. The most common reasons for filing Chapter 7 include:

  • Unemployment or loss of income
  • Sudden illness or accidental injuries
  • Tax debts and other government debts
  • Divorce or legal separation
  • Death of a family member
  • Business debts or closing of a business
  • Mismanagement of finances
  • Overuse of credit cards and personal loans

COVID-19 can create a financial hardship for many of the above reasons. A person might incur substantial medical debts if they or their family members contract coronavirus. In the sad event that a family member dies from COVID-19, the family could lose household income that they need, in addition to incurring high medical bills.

For other individuals, COVID-19 resulted in losing their jobs or having their hours reduced significantly. Within a few months, many people were living week to week and searching for assistance for basic needs, such as food, shelter, and utilities.

Business owners also experienced significant financial loss as shutdowns closed their businesses. Even though shutdowns have been lifted in most areas of the United States, business is far from normal.

People of depleted their savings and might consider using their retirement funds to pay debts. Other people used credit cards and personal loans to provide for their needs. However, the accounts might now be past due and over the limit as the COVID-19 financial crisis continues. For many people, the financial struggle continues with no solution in sight.

Before you use your retirement income or open another credit card to pay debts you cannot pay, consider filing a Chapter 7 bankruptcy to get rid of COVID-19 debts.

Do I Qualify for Filing Under Chapter 7?

Filing Chapter 7 gets rid of COVID-19 debts and other debts that you cannot pay. However, you must meet income qualifications to receive a bankruptcy discharge by filing Chapter 7. A bankruptcy discharge releases you from the legal liability to repay a debt. Most unsecured debts are eligible for a discharge in Chapter 7, including medical bills, personal loans, and credit cards.

There is some good news regarding financial problems and COVID-19. Many people who did not qualify for Chapter 7 before the pandemic might not meet the income qualifications for Chapter 7. Being out of work or having less income for a few months could decrease your median income enough to receive a bankruptcy discharge in Chapter 7.

How Do I Qualify For Chapter 7?

Unless your debts are primarily business debts, your household’s median income must be below the median income for a household of the same number of people in your state. If you “pass” the Means Test, you have a good chance of receiving a bankruptcy discharge in Chapter 7.

You could also for a bankruptcy discharge under Chapter 7 if your disposable income is below a certain amount. Disposable income is the money can use each month to pay toward your unsecured debts.

A Chapter 7 bankruptcy lawyer helps you complete the Means Test to ensure that you maximize allowable expenses to decrease disposable income as low as possible. By doing so, you have a better chance of qualifying for Chapter 7, even if your median income is above the state median income.

How Does COVID-19 Help with Filing Chapter 7?

Median income is calculated using the six months’ income before filing a Chapter 7 bankruptcy petition. If you lost your job or your hours have been reduced, your income is lower. If you did not qualify for Chapter 7 before the pandemic, you might qualify now.

However, you could have a short window for filing Chapter 7 if you get another job and improve your financial situation. The current monthly income used to calculate median income is the average of your income for six months. Each month your income increases, it increases your median income figure.

Talking with a Chapter 7 bankruptcy attorney now is the best way to learn whether you might qualify for Chapter 7 bankruptcy. A Chapter 7 bankruptcy lawyer analyzes your current financial situation. He can help you develop a timeline for filing Chapter 7 that gives you the best chance of qualifying for a discharge and taking full advantage of the benefits of filing under Chapter 7.

What Should I Do If I Want to File a Chapter 7 Bankruptcy Case to Get Rid of COVID-19 Debt?

Talk with a Chapter 7 bankruptcy attorney immediately if you have debts that you cannot pay. It does not matter whether the debts are related to COVID-19 or other matters. A Chapter 7 bankruptcy case can give you the debt relief you need for a fresh start. You can begin improving credit scores after Chapter 7 and rebuilding your finances for a healthier financial future.

Additionally, filing Chapter 7 bankruptcy protects your retirement accounts. Bankruptcy exemptions protect qualified retirement accounts. You keep your retirement funds while eliminating debts. The same could be true for the equity in your home. Before you use the equity in your home or your retirement funds to pay debts, talk to an attorney to see if you qualify for Chapter 7 bankruptcy relief.

Many Chapter 7 bankruptcy debts keep all their property and get rid of most, if not all, their unsecured debts in just four to six months. However, Chapter 7 is also a liquidation bankruptcy. Some people could lose property if they own high-net-worth assets.

Before filing Chapter 7, take the time to get the facts about filing bankruptcy from a trusted bankruptcy lawyer. Learn about your debt-relief options during a free consultation with a Chapter 7 bankruptcy attorney.