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Personal bankruptcy service sees increase in requests amid coronavirus pandemic

An increasing number of Americans are looking for help with Chapter 7 bankruptcy from Upsolve, a nonprofit startup that helps consumers file for bankruptcy, as economic fallout from the coronavirus pandemic continues.

“Over the last month, we’ve seen that there’s an increase in people coming to Upsolve and starting the process of filing for bankruptcy,” Upsolve CEO Rohan Pavuluri told Yahoo Finance. “And we actually expect the number to increase in the coming months.”

A recent survey by Upsolve found that out of 1,269 respondents who were filing between March 28 and April 27th, 22% said the main reason was due to coronavirus.

“Most of the people filing are 1099 workers,” Pavuluri said, highlighting those in the gig economy or the restaurant industry. “People from the service industry, bartenders, people who are Uber drivers, sole proprietors who have seen it more traumatic loss of income or just lost a job.”

An unprecedented number of Americans filed for unemployment in recent weeks. (Yahoo Finance)

Over 50% surveyed by Upsolve cited some form of lost income as the biggest reason why they were filing for bankruptcy. Upsolve’s free filing service aims to help users avoid packing $1,500 to $2,000 in legal fees to go through bankruptcy by connecting them with lawyers.

Total consumer bankruptcy filings in April dropped 47% compared to the previous year, according to Epiq Systems. Pavuluri noted that many people are primarily concerned about obtaining food and shelter, and that they believe courts are closed or don’t want to print out the forms and hand-deliver them to the court.

“They don't want to go and put themselves in harm's way by printing out the forms and delivering them to the court,” Pavuluri said. “So they're just holding off on filing.”

The U.S. has over 1.2 million cases of coronavirus. (Graphic: David Foster/Yahoo Finance)

It's only fair that individuals have the same tools’

Upsolve expects the overall number of bankruptcy filings by Americans — particularly low-income individuals — will like increase going forward. Pavuluri noted that most filings have indicated that they are having difficulty with medical bills, in particular.

The average age of survey respondents who filed for Chapter 7 was 39. Most of the people seeking relief earn below their state’s median income, which is below $30,000 a year on average. 

Before filing bankruptcy, users said they tried a variety of ways to reduce their expenses, from cutting back on basic necessities like groceries, rent, and utilities to selling or pawning things they owned. About 14%  also indicated that their wages were being garnished, and 3.8% were facing eviction or foreclosure. 

Read more: How to deal with financial stress

A arrives at the U.S. District Bankruptcy Court for the Southern District of New York in Manhattan, New York, U.S., January 9, 2020. (Photo: REUTERS/Brendan McDermid)

Pavuluri also addressed a common criticism that bankruptcy shouldn’t be an easy way out for people.

“If the largest corporations in the United States are able to file for bankruptcy, it's only fair that individuals have the same tools that are available to those corporations,” he stressed. “And we're trying to level the playing field for people to actually have access to their legal system.”

Aarthi is a reporter for Yahoo Finance. She can be reached at aarthi@yahoofinance.com. Follow her on Twitter @aarthiswami

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