Considering Filing Bankruptcy

If your bankruptcy is in progress or you are considering filing bankruptcy soon, you are probably concerned about how the coronavirus pandemic could affect your case. Here are answers to common questions about the impact of the pandemic on bankruptcy. The coronavirus pandemic is creating challenging and uncertain times across the globe.

Like many businesses and agencies, the U.S. Court system is modifying how it operates. These FAQs are meant to be cover broad topics but please check with your local court as things are changing frequently. Although bankruptcy is a matter of federal law, practices and procedures can vary from district to district. Your court's website and your bankruptcy attorney can provide you with the latest information.

1. Can I File for Bankruptcy During the Pandemic?

Yes, bankruptcy courts are accepting cases even if they are closed to the public. If you are represented by a bankruptcy attorney, your attorney will file all your bankruptcy papers (petition and schedules) online. If you are filing without an attorney, you may be able to leave your papers in a dropbox at the court or you may be able to email or fax them to the court. You should call your local bankruptcy courthouse or check its website to determine if the court has published any specific guidance for your district.

2. If I File During the Pandemic, Will I Still Have to Pay the Bankruptcy Filing Fee?

Yes, all court fees must still be paid for your case to be processed and move forward. If you don't pay the fees, your case can be dismissed. If you can't afford to pay the filing fee upfront or installments, you might qualify for a waiver of the fee. The standards for getting a fee waiver are stringent. Check your local court's website for how to pay your fees if you are filing without an attorney. If you have an attorney, he or she can handle your fee waiver or fee payment through the online filing system.

3. Will I Still Have to Comply with Deadlines?

Yes, you should assume that all court deadlines you have been given for your bankruptcy case apply unless you receive official correspondence from the bankruptcy court to the contrary. These notices will look like official court documents and come by regular mail.

The deadlines you will still need to meet may include payment due dates, deadlines to cure deficiencies, deadlines to submit your pre- and post-filing certificates for completion of credit counseling and financial management courses, and any additional deadlines issued by your trustee for documents, turnover of assets, and so forth.

Missing a deadline (even if you are filing without an attorney) can result in your case being dismissed. This means you will not receive your bankruptcy discharge and will have to refile your case, pay the filing fees again, and might even have to wait for a time to refile.

4. When Will My Meeting of Creditors (341 Hearing) Be Scheduled?

Everyone who files for bankruptcy has to attend a meeting of creditors (also called the section 341 meeting after the applicable section of the Bankruptcy Code). If you skip it, the court could dismiss your case without discharging your debts. The meeting of the creditors gives your bankruptcy trustee and any of your creditors that wish to appear the chance to ask you questions about your property and debts. The trustee will want you to verify that the information about your income, assets, and debts in your bankruptcy petition and schedules is accurate and up to date.

Once your case is filed, the bankruptcy court will issue a Form 309A, which will show the date of your 341 meeting. This form is sent by regular mail a few days after your case is filed. Even with Covid-19, courts are generally mailing out the notices on time, but 341 meetings, normally scheduled between 20 to 40 days from the date the case was filed with the court, may be delayed. Some meetings that are already scheduled may be rescheduled for a later time or postponed (“continued”) to an as-yet-unspecified date. Also changed is how the 341 meetings might be conducted.

5. How Do I Attend My 341 Hearing?

Debtor attorneys and debtors participate in 341 Hearings by phone now. This procedure might be extended, so you will want to check with your specific jurisdiction or your bankruptcy attorney. Your trustee may also send you instructions about how your 341 meeting will occur. Some trustees may send a form for you to complete and sign before a notary public. You might also have to mail or email a copy of your identification (e.g. driver's license or government identification card) and social security card to the trustee).

Trustees usually check these documents to confirm a filer's identity at the 341 hearing when it is conducted in person. If you haven't heard from the trustee's office and your meeting date is coming up in the next 10 days, contact your attorney or the trustee's office to find out how they are handling 341 meetings. Trustees are independent contractors, so individual trustees may be changing things and adapting as the Covid-19 situation continues to evolve.

6. Will the Pandemic Delay My Discharge?

It could. During the pandemic, many courts are short-staffed and employees are working from home. As a result, there are bound to be delays in the processing of documents and hearings. Some courts are postponing 341 creditors' meetings. Your debts cannot be discharged until you have participated in a 341 meeting. If your 341 meeting is rescheduled for a later date, your discharge will be correspondingly delayed. Keep in touch with your trustee and attorney and routinely check your mail and court notices to see if your 341 meeting has been rescheduled.

7. If My Case Is Delayed, Will the Automatic Stay Remain in Effect?

When you file for bankruptcy you get the protection of the automatic stay. The automatic stay is an injunction that prevents creditors from collecting or trying to collect certain types of debts while your bankruptcy case is pending. Covid-19 will not affect your automatic stay. The good news is even if your case is delayed because of the pandemic, the automatic stay remains in place until your case is finished. This means that your creditors cannot contact you or try to collect on debts related to your bankruptcy.

8. Do I Need to Inform My Creditors About Delays in My Bankruptcy Case?

No, you do not need to contact your creditors about delays in your case. The bankruptcy court and your trustee are responsible for keeping your creditors informed.

9. If I Receive a Stimulus Payment from The Government, Can the Trustee Take It to Pay My Creditors?

The Coronavirus Aid, Relief, and Economic Security (CARES) Act of 2020 provides many Americans with an economic stimulus payment. The payments are a maximum of $1,200 per individual or $2,400 per married couple, with an additional $500 for each child under the age of 17. The payments are payable in full to individuals earning less than $75,000 per year, married couples earning less than $150,000 per year, and heads of household earning less than $112,500 per year. They decrease by 5 percent of income exceeding those thresholds until completely phased out.

If you file a Chapter 7 bankruptcy, a stimulus payment that you are entitled to receive or have received but not yet spent is technically part of your bankruptcy estate. The trustee can take your stimulus money to pay your creditors unless it is protected by an exemption. However, on April 7, 2020, the U.S. trustee program issued a notice stating that it doesn't expect trustees to take stimulus payments from filers given their modest amounts and the potential costs of collecting them. In other words, in most cases, trustees will not take stimulus payments because it does not make economic sense to do so. For Chapter 13 filers, the CARES Act amended the Bankruptcy Code to provide that stimulus payments are not included as disposable income available to pay creditors through a Chapter 13 plan.

10. If I Receive a Stimulus Payment from The Federal Government, Will It Affect My Eligibility to File Chapter 7 or Chapter 13 Bankruptcy?

Stimulus payments do not affect your eligibility to file under either Chapter. Stimulus payments you receive within six months before filing are excluded in calculating current monthly income when determining your eligibility under the means test for Chapter 7. The stimulus payments will be excluded when determining whether you have sufficient disposable income for Chapter 13.

11. What Happens if I Lose My Job Because of The Coronavirus and Cannot Make My Chapter 13 Plan Payments?

If you cannot make your Chapter 13 plan payments, get in touch with your bankruptcy attorney as soon as possible to discuss possible solutions. Your bankruptcy case could be dismissed if you simply skip your payments. You may be eligible to have your plan modified if it was confirmed on or before March 27, 2020, the date that the CARES Act became law. The CARES Act amended the Bankruptcy Code to allow Chapter 13 filers to request a plan modification if they are experiencing or have experienced a material financial hardship due, directly or indirectly, to the coronavirus pandemic.

The court must approve the modification after a hearing. It's not yet known how courts will interpret this language, but given the economic devastation caused by the pandemic, it's likely that filers who have experienced a significant loss of income because of a coronavirus-related layoff, reduction in hours, illness, or lack of child care will qualify.

It also is unclear what types of modifications courts will permit. Presumably, periods of deferred payments will be allowed. The CARES Act does permit plans to be extended so that they continue for up to seven years from the time the first payment was due. The option to modify your plan because of a coronavirus related hardship is available for one year from the enactment of the CARES Act.

This blog is intended for information purposes only and does not establish legal representation or financial guidance.