Extraordinary job losses combined with COVID-19 medical debt is wreaking financial havoc on many families. A recent article in the Wall Street Journal discussed the ways in which the pandemic is affecting the debt-laden middle class in particular. Many middle class families are finding that their existing debt paired with job losses, an economic slowdown and unexpected expenses is creating an avalanche that they just can’t get out from under.
Financial Vulnerability Of The Middle Class
The Wall Street Journal article provides more evidence that the financial situation fueled by the pandemic has impacted people of all economic levels. There is a common misconception that only lower-income families file for bankruptcy, or only those who spend money recklessly. However, the reality is that many middle class families with generous incomes struggle financially due to a variety of factors from the high cost of senior living for their aging parents to the skyrocketing costs of college for their children. Throw in costs associated with a divorce or an accident and financial stability seems like an impossible goal. Many middle class families who were already in debt prior to the pandemic are finding that unemployment insurance simply isn’t enough to cover high monthly expenses and debt payments. In these types of situations, bankruptcy can often be a lifeline.
Highly-educated professionals in the 40-60 age range appear to be particularly financially vulnerable during this time. Even those with good credit or a modest retirement nest egg are not immune from financial loss. Most U.S. middle class families spend liberally with credit cards and many are making tuition payments for children while caring for elderly parents, which creates a perfect storm when unemployment hits. Soaring medical expenses, vehicle loans, insurance payments, the costs associated with childcare, tuition or elder care, as well as one or more mortgages mean that many middle class families have very little discretionary income. In this type of scenario, it only takes one unexpected event – in this case a pandemic – to destabilize a family’s financial picture.
Bankruptcy And Debt Collection
There are many reasons why bankruptcy is an attractive option for those who are facing financial difficulties. One of the biggest benefits is that the court will issue an order for an “automatic stay” as soon as a bankruptcy petition is filed. The automatic stay immediately stops any and all further collection actions from being taken against the filer, including home foreclosure, while the bankruptcy process is underway. This means that creditors and debt collectors must immediately stop their letters and phone calls. The automatic stay also halts wage garnishments (with the exception of child support and alimony), as well as lawsuits and any property repossessions.
Bankruptcy And Holding Onto A Home
A Chapter 13 bankruptcy can be an effective choice for many middle class families who have valuable property to protect. This type of bankruptcy is essentially a reorganization of debts, and depending on the situation, it may offer an individual protection from losing their home. During the period in which the automatic stay is active, it may be possible to work with the lender to lower the monthly mortgage payment and also establish a repayment plan to catch-up on any past-due amounts. Generally in a Chapter 13 bankruptcy case, the court allots a discretionary amount for monthly living expenses and establishes a 3-5 year plan for the filer to repay creditors. In addition, it is possible that some debts may be reduced or forgiven. By making the required payments in full and on time each month, the filer will also begin to start rebuilding his or her credit.
Consult A Local Chapter 13 Bankruptcy Attorney
Chapter 13 bankruptcy can be a sensible option during times of extreme financial distress. Contact Sirody & Associates at (410) 415-0445 for a consultation about Chapter 13 bankruptcy. Our bankruptcy attorneys will take the time to understand your individual situation and outline all available options. We understand that you want to hold onto your home and other valuable assets. We have filed thousands of Chapter 13 Maryland bankruptcy cases, giving us the experience to develop the best strategy for your particular case.