Pauline E. Ranger Bankruptcy Due to the COVID-19 Pandemic
For many years, our country will feel COVID’s devastating and long-lasting economic effects. The consequences may last the entire lives of the affected people. Individuals and households often use personal bankruptcy to protect their assets against creditors.
How can consumers get help if they face bankruptcy due to the COVID-19 Pandemic
Consumers must first meet with a credit counseling agency to receive a briefing on their budget. This can take anywhere from 30 minutes to 90 minutes. The consumer can file bankruptcy independently or with an attorney specializing in bankruptcy. The court must first approve a provider* that offers a 2-hour debtor education class.
Pandemic Effects of Bankruptcies
Untold numbers of households have been affected by the sudden and severe economic disruption, resulting in unemployment, layoffs, and business closures. These households, which are not receiving a regular income – even if they receive a portion through unemployment insurance – have fallen behind in paying their bills, making loan payments, and keeping up with regular expenses.
No one is surprised that the pandemic left many families in financial ruin. Income interruption caused missed payments for home loans, rent, car loans, student loans, utilities, and more. For hundreds of thousands of Americans whose primary income earner was infected with COVID-19, they were forced to endure hospitalization or even succumb to the virus.
Medical Bills
A household that has directly dealt with COVID-19 is likely to face double the amount of financial problems. Likely, COVID-19 will cause tens or even thousands of medical bills. Medical bills for those with COVID-19 could easily reach $70,000 within 5 or 6 days.
Many major health policies require that the consumer pay the first $10,000, or even $20,000, of their medical bills. Medical costs can easily reach $30,000-$40,000 even without hospitalization in a few days.
Even if you have or can afford a good medical insurance plan, the annual premiums, copays, and deductibles for a family of four could still amount to more than $10,000 a year.
Most consumers have not seriously considered personal bankruptcy, let alone filed one. Many falsely believe bankruptcy cannot help when overwhelmed with medical debts or hospital bills. In reality, bankruptcy could be an option for eliminating such crippling debts.
Credit and Retail Card
Even those who do not have COVID-19 can still face difficulties with their credit card and store account accounts. Income reductions and interruptions may force families to make difficult decisions. They may have to decide between paying for a car, cooking dinner, or sending their child to college versus making a credit card repayment. Consumers have relied more on credit cards and store card payments to pay their routine bills or support unsustainable living expenses.
If financial disasters strike, bankruptcy can be a viable alternative to years of crushing debt. Although bankruptcy courts are unlikely to release consumers from their obligation to repay recent frivolous purchases on credit cards, such as a Prada bag or a world cruise, bankruptcy can be a viable option for consumers who have accumulated a lot of debt.
Home Loans
Home prices have risen again since the Great Recession, and in some areas, they’ve outpaced inflation and income growth. These scenarios have brought many households to financial ruin, even without major economic downturns.
Any financial bump will cause individuals and families to lose financial stability, especially if the house payment is nearly half their income. Foreclosures are a real possibility when income is interrupted.
The most common reason individuals and couples file bankruptcy is to save their homes from foreclosure. If the bankruptcy is successful, the homeowner will still need to continue to pay their mortgage. However, it allows for a reset of the loan, also known as a “reaffirmation,” which allows the borrower to remain in the house despite previous late or missed payments.
Car Loans
The average monthly car payment was well over $500 before the pandemic. The median household income is $5,000, meaning that Americans with car payments spend over 10% of their monthly income on payments, plus 2% gasoline, 2% insurance, and 1% routine maintenance.
It is not surprising that households with such high transportation costs will see their incomes drop from 50% to 70% due to unemployment or furloughs. Like foreclosures, repossession is a major concern.
Many consumers continue monthly payments on their car or truck, even with large car payments. Reaffirming a vehicle loan in bankruptcy is similar to a mortgage. Any back payments are moved toward the end of the loan.
Credit Counseling Certificate: How it helps
Lawmakers passed the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act to prevent the abuse of bankruptcy laws that they felt had been committed for many years. In addition to income limits for consumers considering bankruptcy liquidation and the requirement that they take a course on financial education after filing, there were also significant changes.
For proof that they have done these things, filers of bankruptcy must submit certificates from service providers proving they have attended a class on personal money management and met with a financial counselor.
Some attorneys, lawmakers, and providers of credit counseling certificates believe that the first certificate, issued before filing, is of no value to consumers. The overwhelming majority of consumers seeking a credit counseling certification have already spoken to a bankruptcy lawyer and will file for bankruptcy regardless of whether the counseling is successful. This does not mean that the counseling is of no use.
As one of the approved* providers, Money Fit has helped thousands of bankruptcy filers file since 2005. Only a few have chosen to continue their bankruptcy rather than pursue debt management. Still, most received excellent counseling, personalized financial insights, and helpful tips and ideas on preventing future financial hardship.
Our consumer evaluations show that 97% and 98% of filers feel that our services have helped them better understand the bankruptcy process. They also have a more accurate picture of their financial situation and better options to get out of debt. Common responses when asked which part of the counseling services they found most useful included:
