Bankers, market watchers and bankruptcy experts agree that America needs to brace itself for a tidal wave of bankruptcies flowing from COVID-19-related job losses, and yet filing for bankruptcy too early, or filing the wrong type of bankruptcy, can be devastating.
Fortunately, Virginians have a new online tool for determining whether personal bankruptcy is the right option for them now, whether Chapter 7 or Chapter 13 might be better suited to their situation, and whether they might qualify for civil legal aid.
IsBankruptcyForMeVA.org is a new, free statewide resource created by Virginia Poverty Law Center and Central Virginia Legal Aid Society (CVLAS) with a grant from the federally funded Legal Services Corporation. It’s designed for those Virginians whose debts have piled up and become seemingly insurmountable, particularly low-wage workers and people living in poverty, who are suffering the worst of the economic fallout of the pandemic.
“We developed IsBankruptcyForMeVA.org as an online guided interview very similar to the ones we might do in person when determining whether a client is currently a good candidate for bankruptcy, and if so, what type,” said CVLAS Litigation Director Marty Wegbreit, who has had thousands of such conversations in 40 years as a legal aid attorney. “It is not a substitute for the advice of a bankruptcy attorney, and no one should ever file for bankruptcy without the help of a lawyer because the consequences of errors can be disastrous, but it’s an educational screening tool people can use to learn more about how bankruptcy might apply to them.”
Attorney David K. Spiro of Spiro & Browne PLC in Richmond has been practicing bankruptcy law in Virginia for nearly 30 years and often provides pro bono legal services to low-income bankruptcy filers referred by CVLAS. He is among the experts who say that while bankruptcies are down so far in 2020 as compared to last year, we can expect that to change soon.
“Some people have been able to get unemployment compensation or Paycheck Protection Program funds that will eventually run out. Meanwhile, small businesses seem paralyzed. They’re waiting to see what happens,” Spiro said. “But there’s no question that we’re going to see a wave. That’s the consensus of all the bankruptcy attorneys I know.”
In addition to Virginians who have been laid off, Spiro said in many cases small business owners end up having to file personal bankruptcies instead of, or in addition to, business bankruptcies.
“They’re always overlapping, intertwined,” he said. “That’s one of the important tasks of a bankruptcy lawyer. Everything is comingled when somebody has a small business, and you just have to sort it out and advise the client as to their best options.”
Whether because of a job loss or a failed business, many Virginians who have lost their income may soon run out of savings, if they had any. According to the Federal Reserve, 4 in 10 Americans don’t have enough savings to cover an unexpected $400 expense without adding to their debt, and 12 percent couldn’t cover it at all.
Meanwhile, unemployment compensation, for those Virginians who’ve been receiving it, could end before they can find new jobs, or jobs that pay anything like what they previously earned. And that’s when we could see the tsunami of bankruptcies the experts are predicting.
For those facing the possibility, the guided interview will recommend whether they should, or should not, contact an attorney about filing bankruptcy now, and will explain why or why not. It also will recommend which type of bankruptcy users should file, whether they might be eligible for free legal aid, and if so, which legal aid organization may be able to assist them. Lastly, it will explain to users for whom the timing is not yet right to file bankruptcy when they may want to reconsider it if their situation changes.
Filing bankruptcy too early can be a mistake, because debts acquired after the filing will not be wiped out, and once a person’s debt is discharged through bankruptcy, he or she won’t be able to obtain another discharge of their debt for two to eight years, depending on which type of bankruptcy was originally filed and which type of bankruptcy is being sought.
Regardless of who uses the online guided interview at IsBankruptcyForMeVA.org as their first step figuring out their readiness for bankruptcy, if the process ends with a recommendation of Chapter 7 or Chapter 13 personal bankruptcy, then finding a good bankruptcy attorney is Step 2.
For those who meet financial eligibility criteria, one of the nine civil legal aid organizations in Virginia may be able to help them or refer them to a pro bono attorney willing to take their case for free.