Considering Filing for Bankruptcy in 2022? Here’s What’s Changed
Much like any other aspect of our lives, the COVID-19 pandemic has pushed lawmakers to adjust policies and implement changes. Add the expiration of the eviction moratorium, and it is easy to see that more and more people and enterprises will be filing for bankruptcy in 2022.
Covid-19 Bankruptcy Impacts
On March 27, 2021, President Biden signed the COVID-19 Bankruptcy Relief Extension Act. The so-called Extension Act temporarily extends certain bankruptcy relief provisions enacted as part of the CARES Act. The goal was to provide a cheaper and faster bankruptcy option to borrowers and lenders. The $7.5 million debt ceiling was extended to March 27, 2022, and practitioners expect Congress to enact further extensions.
The federal stimulus packages that the government released following the pandemic are helping many businesses and individual borrowers to stay afloat, but experts believe once those run out, there will be an influx of people filing for bankruptcy in 2022.
Filing for Bankruptcy in 2022 May Surpass the Housing Crisis (2007-2010)
Practitioners believe it is fair to expect an influx of bankruptcy cases, nearly as much (if not more) as those during the housing crisis from a decade ago. People filing for Chapter 13 will still be required to pay back their debt over a three-to-five-year period. However, what may have changed is the reason for bankruptcy, as medical bills or the death of a family member can also increase the burden of debt on some people. The same holds true for those filing for Chapter 7.
Both borrowers and lenders will have to adapt to the shifting bankruptcy landscape in 2022. The best you can do, either as a borrower or as a lender, is to keep track of upcoming changes and consult with your attorney before making any decisions about filing for bankruptcy in 2022.
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Bankruptcy is a section of the law that allows debtors who are unable (fully or partially) to pay their outstanding debts to get a fresh start and get financial relief. Keep in mind that not all debts qualify to be removed in a bankruptcy case (e.g., student loans). The U.S. Supreme Court explains bankruptcy law as a way to give individuals and entities a new opportunity in life by starting fresh without the pressure and discouragement of preexisting debt. Federal bankruptcy law consists of chapters published in the Bankruptcy Code.
The U.S. Bankruptcy Law covers six different types of bankruptcy, each described in a separate chapter in the Bankruptcy Code. Although they differ in terms and procedures, their common goal is to provide permanent relief from certain outstanding debts. In other words, they help to discharge the debtor’s dischargeable debts. These are the different types of bankruptcy you can file:
Chapter 7: This chapter provides liquidation of the non-exempt assets of the debtor. Certain assets, like a car or a home, may be exempt from bankruptcy, which means the debtor can likely keep them under this chapter. The court appoints a trustee who will oversee the debtor’s non-exempt assets and will handle their sale. The proceeds will go to the creditors. Chapter 7 is open both to individuals and businesses.
Chapter 9: This chapter is intended to help municipalities to reorganize their debts. It is open to towns, cities, villages, municipal utilities, taxing districts, and school districts.
Chapter 11: Intended to help partnerships and corporations, chapter 11 bankruptcy aims to provide a supervised reorganization of a business by allowing the debtor to keep running the business while following a court-ordered payment plan.
Chapter 12: It consists of bankruptcy provisions for family farmers and fishers.
Chapter 13: It is aimed at helping individuals with a steady regular income to create a repayment plan, usually within three to five years, and discharge the remaining dischargeable debt.
Chapter 15: This chapter applies to cross-border bankruptcies that involve foreign parties.
Since bankruptcy can have a lasting negative effect on your credit, you should consider it a last resort option. It is a good idea to hold off on filing if you believe there is a chance to improve your financial situation or that you will have substantial expenses in the near future because there is a limit to how often you can file for bankruptcy.
The moment you file for bankruptcy, this will trigger an automatic stay that will stop wage garnishment, lawsuits, foreclosure, and collection efforts. So, if you want to stop the repossession of your car or the foreclosure of your home, and you have the income to pay off that debt, it may be a good idea to file for Chapter 13, for example. Of course, you should ideally consult with a lawyer before you take any legal action.
Is there a specific amount of debt to qualify for bankruptcy?
Generally speaking, there is no preset minimum amount of debt you need to qualify for bankruptcy. However, certain debt limits apply to Chapter 13, for instance. The maximum amount changes constantly, but it currently is $383,175 for unsecured debt and $1,149,525 for secured debt. If your outstanding debt is relatively low, it’s wise to consider alternative solutions to bankruptcy to ensure that filing for one of the six chapters is still an option for you in the near future. It’s an important consideration because there are limits on how many times a person can discharge debts in bankruptcy.
It is possible, but it depends on the type of debt you have. Most consumer debt can be discharged in a bankruptcy case, but if you forget to include a debt in the process of filing, it will not be discharged. In addition to that, creditors have the right to object to the discharge of any debt.
There are 19 categories of non-dischargeable debts that cannot usually be eliminated (unless a creditor decides not to challenge your effort to discharge them). Some of them include child support, alimony, certain tax debts, criminal restitution, and condo fee debts.
Do I need a lawyer to file for bankruptcy, or can I do it on my own?
It is allowed for individuals to file for bankruptcy without a lawyer. Debtors who decide not to use legal help in the filing process are responsible for understanding local court procedures and what relevant bankruptcy laws apply to them. In general, however, bankruptcy law is very complex and can be confusing. Understanding the process is key, and it is a good idea to consult with a bankruptcy lawyer about your circumstances to ensure you get the best outcome.