During the COVID-19 pandemic, millions have been laid off or classified as non-essential. This is especially difficult for those filing for bankruptcy, or on the brink of needing to file. While this pandemic has added some leniency to paying bills and some courts have extended hearing dates which could buy you more time to work with a lawyer or figure out alternatives. In addition, the release of the stimulus pay can help you pay off some of that back debt or keep you afloat until some of the quarantines are lifted.

Types of Bankruptcy

There are two main types of bankruptcy that consumers: Chapter 13 and Chapter 7.

Chapter 7 Bankruptcy

Chapter 7 bankruptcy happens if the court determines your income is too low to pay back your entire debt. Chapter 7 allows the courts to sell your assets without exception in order to pay back as much debt as possible. Whatever debt remains unpaid is erased. While you could lose your house and car in the process (at the very least the equity you’ve put into your home), if the court should choose it. Chapter 7 bankruptcy stays on your credit report for 10 years. 

Chapter 13 Bankruptcy 

Chapter 13 bankrputcy happens when the court approves a repayment plan for you to pay back part or all of your debt back via a monthly payment plan. You also must follow a strict budget that is court-approved. Chapter 13 bankrputcy stays on your credit report for 7 years.

Self-employed and small businesses can sometimes file for Chapter 11 bankruptcy, which is specifically reserved only for businesses. Chapter 12 bankruptcy is also a lesser-known bankrputcy option reserved for fishermen and farmers.

Bankruptcy Alternatives

Keep in mind filing for bankruptcy won’t just erase all of your debt. 

Self-employed small business loans are an alternative to bankruptcy for small businesses or independent contractors affected by the COVID-19 shutdown, for example. Even before this pandemic, if your business is struggling to stay afloat, a small business loan can help you get by until things get better or you restructure your business plans and goals.If you are self-employed, you can apply for one of many self employed loans that have become more popular and flexibly to help you stay afloat during this trying time.

Find a financial coach. Going to a financial coach can help you learn to spend money responsibly, improve your credit, and view other options that you may not have thought of on your own. They can help you find the best loans and consider other options such as debt consolidation or settlement options.

Make a strict budget. Write down every bill and expense you have in one column and every source of income you have in another. Round up to make sure you cover everything and 

Pick up a second job. Some people pick up a part time second or third job. For example, I recently started Door Dashing, so I can work as much or as little as I want, when it’s convenient for me. On top of that, you are considered an essential worker so you can still go out during the social isolation.

Make sure to consider all of your options before choosing bankruptcy, because you may be able to work out something that will have less overall impact on your credit score and your life.