There have been many ways that Covid-19 has impacted our lives. From wearing masks for office visits, having more phone and video conference appointments, and to the different ways in that it has impacted bankruptcy filings. One of the more interesting aspects to Covid-19 is that it has allowed individuals who otherwise would not qualify for Chapter 7 bankruptcy to file and discharge their long held debt.
Recently, I have had a number of clients who were historically high earners, who would not have passed the “Means Test” in bankruptcy, qualify now (reduction in hours, employment, wages) and discharge debt that they have been accumulating for the past 5 years or more. In a normal scenario, these people would file for Chapter 13 bankruptcy and be relegated to a 5 year payment plan. However, due to the dip in income from Covid-19 they now qualify for Chapter 7 bankruptcy and are able to discharge large amounts of debt with no payment plan required. Some of the clients were very sophisticated and realized that this current time was their singular chance to file Chapter 7 bankruptcy.
Qualification for Chapter 7 bankruptcy can be very tricky. The main hurdle is the “Means Test”. The “Means Test” requires a snapshot of your income for the 6 months prior to your bankruptcy case filing. So in many cases, this 6 month window of income plays the decisive factor in whether or not a person can file for Chapter 7 bankruptcy. In some cases, waiting even just until the next calendar month to file Chapter 7 bankruptcy can completely disqualify you.
If you are experiencing a downturn in income during the past 6 months, it may be in your best interest to talk to a bankruptcy lawyer about your bankruptcy options. Don’t wait until things “turn around” to talk to attorney. If your wages start going back up, you may lose your opportunity to qualify for Chapter 7 bankruptcy. If you normally make a decent wage, this may be your one chance to file for Chapter 7 bankruptcy and wipe out the large debt you have been carrying.