Are New Yorkers Heading Towards Bankruptcy Amid Covid-19?
Many New Yorkers live paycheck to paycheck to survive to live in one of the most expensive places in the country. As the coronavirus continues to impact the economy individuals and businesses are suffering financially. As New Yorkers are required to abide by the recommendations by the CDC for social distancing, to reduce the spread of the virus, businesses and individuals are being left without pay. Amid this pandemic, many businesses are being forced to shut down while leaving employees unemployed.
With the rapid spread of the coronavirus, medical doctors are already warning the public that hospital beds will be sparse within the coming weeks. In turn, this will cause a significant increase in medical bills for many consumers. Most New Yorkers get their health benefits through their work and if their jobs close down many will not have access to proper medical coverage leaving them with high medical debt.
With the sudden impacts of the coronavirus on an individual’s livelihood, most New Yorkers don’t have money saved to hold them afloat for this type of emergency. Recent studies have shown that 37.95 percent of New Yorkers have 0$ saved in the bank and 27.11 percent of New Yorkers have $1-$1,000 in savings. Without any savings during this pandemic credit usage will rise and bills will forego being paid. Individuals will need to file bankruptcy to help them get back on their feet.
In addition to New Yorkers' minimal savings, before the spread of the coronavirus, consumers were already struggling to pay their outstanding student loan debt. As the economy’s troubles continue to plow through it will push a growing number of already struggling consumers into bankruptcy. During the crash of 2008, we saw a rise in bankruptcy filings which could be true again. As home values begin to dwindle, credit cards go unpaid, and medical bills rise, distressed consumers will need to seek the protection of the bankruptcy court to help them.
What Is Bankruptcy?
Bankruptcy is a legal process used to help people who fall into unfortunate circumstances get out of debt. Individuals and businesses can file bankruptcy to help them get back on their feet. For consumers and small businesses, bankruptcy can help them start over. The first type of bankruptcy protection available is Chapter 7 bankruptcy. A New York Chapter 7 bankruptcy, eliminates consumer's debt. To qualify for a Chapter 7 bankruptcy, individuals must pass a Means Test. The Means Test was created by Congress in 2008 to stop individuals with high wages from filing bankruptcy. Congress didn't think it was fair to allow these individuals to not pay their credit cards back. To qualify under the means test an individual's household income must be less than New York's median income for a family of similar size. If the individual's income is higher they must go to the second part of the test which uses their income and expenses to determine if they qualify.
Chapter 13 is another type of bankruptcy individuals can use to get out of debt. A chapter 13 bankruptcy, is for individuals with assets and high wages. When consumers file a chapter 13 bankruptcy they can pay their debts back over a three to five-year plan. Allowing the interest and late fees to stop. In some cases, consumers may not have to pay back the full amount of debt they owe to their creditors.
Lastly, Chapter 11 is the third type of bankruptcy that can be useful for failing businesses. Chapter 11 bankruptcy allows businesses to continue running their daily affairs while implementing a plan to restructure their business.
Theoretically, filing for bankruptcy can help the economy in some ways. Bankruptcy can be a vital tool in helping individuals while also allowing creditors to get paid. Also, after the bankruptcy process is over individuals can begin taking out new lines of credit almost immediately.
There are a few problems that individuals may run into amidst the coronavirus and how the bankruptcy system is set up now. Student loans are not dischargeable in bankruptcy. While consumers have already been struggling to make their monthly student loan payments, the effects of student loans will continue to be an even bigger problem when this is over. Further, many high wage earners who have a property with equity and don’t qualify for a chapter 13 repayment plan may find themselves not being able to fund a Chapter 13 plan. Congress may have to step in and change some of the bankruptcy procedures to help struggling consumers.
What Can Bankruptcy Do to Help?
Amidst the coronavirus, many people will likely not be able to afford to pay their past due debts. This will cause Filing for bankruptcy can help people start over financially. Bankruptcy can stop pending foreclosures, wage garnishments, repossessions, and bank levies. It can also stop harassing debt collectors from calling and trying to collect past due debt. Struggling with finances not only causes mental stress but it can lead to physical stress as well. Filing for bankruptcy can give people peace of mind.
What Can Individuals Do if They Need to File Bankruptcy Soon?
There are some things consumers can begin doing to prepare in case they need the protections of the Bankruptcy Court once the coronavirus is over. Consumers should get a full idea of their financial situation. This means gathering all of their outstanding credit card bills, medical bills, mortgage statements, tax returns and pay stubs. Also, consumers should refrain from doing anything that may disqualify them for bankruptcy. This means doing anything that the Bankruptcy Court may presume as fraud. Consumers should avoid transferring property out of their name, paying back friends or relatives for any past debts, or hiding assets. Doing such prior to filing bankruptcy can be deemed a federal crime.
What Other Debt Relief Options Are Available if Bankruptcy is Not an Option?
Bankruptcy may not be an option for some individuals. In that instance, individuals may be able to negotiate their debts directly with their creditors. To do this, consumers will need to either be making money or have money put away to be able to offer settlements. If this isn’t a viable option, consumers may look into trying to consolidate their debt. However, there are a few caveats to debt consolidation. First, in order to qualify you will need to have good credit. Moreover, you may end up paying high-interest fees for a longer period of time. To get a better idea of what financial options consumers should take they should look into speaking with a bankruptcy lawyer. Many bankruptcy lawyers provide free consultations that consumers can take advantage of. Even if bankruptcy may not be in the near future it is important individuals educate themselves on the bankruptcy process. With the coronavirus spreading, and the future economy at-risk individuals should begin taking the necessary steps to safeguard their finances.
Karra L. Kingston Esq. is a Bankruptcy Lawyer in Staten Island, New York and New Jersey. Karra L. Kingston Esq. helps people get out of debt and start over. https://bankruptcylawnynj.com Call for a free consultation by calling (973)-979-9078 or emailing [email protected]@gmail.com
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