Skip to main content

Social Distancing Brought Bankruptcy within Debtors’ Reach

Carl R. Gustafson

Lincoln Law, LLP

When COVID-19 closed down most of the legal system, bankruptcy courts across the nation responded quickly to adapt. Their actions included allowing hearings, including the creditor meetings, to take place by telephone or video conference and permitting the use of e-signatures. During the crisis, the bankruptcy courts processed hundreds of thousands of cases, and they proceeded without significant bumps or bruises.

The emergency actions taken in response to COVID-19 allowed the courts to continue functioning and meting out justice. As a side effect, the emergency changes also reduced transportation prerequisites, time away from work and barriers to access attorneys. During the emergency, bankruptcy courts also made it easier for debtors to file successful bankruptcy cases.

Consumer bankruptcy filings currently require completing forms that frequently number more than sixty pages. The code requires debtors to turn over the following accompanying evidence at the whim of the reviewing trustee: bank statements, tax returns, pay stubs, and other documents. The debtor must attend a hearing before that trustee and answer questions under oath. The consumer debtor must also take debt education courses before and after filing bankruptcy. In addition, the math required is likely more than the debtor has done since high school, and all of it is reviewed by and under the scrutiny of the court system. None of that was changed.

Carless Debtors

What did change was how much work debtors had to miss in the endeavor, whether they needed a car, and how many attorneys they could reach to help them run the gauntlet, gather the documents, do the math, survive the hearing, and get the sleep, rest and income that the bankruptcy was supposed to enable.

As courts enabled creditor meetings to take place online, debtors no longer needed cars to complete their cases. One of the most significant choices that debtors face is what to do with their secured debts. A common question after I suggest that a high interest rate car be surrendered in bankruptcy is “How will I get to work?” which is not infrequently followed with “How will I get to court?” On the phone or by videoconference became the reassuring answer.

Unpaid Time Off

In a Chapter 7 bankruptcy filing, a debtor must prove, by the aforementioned math, insufficient income to repay creditors. A day or so after filing, the debtor is assigned a weekday hearing that the debtor must attend. The next call is to the debtor’s boss to ask for the day or part day off. That may be a 5% reduction in income the month after filing bankruptcy. And if all of the papers aren’t in order, the hearing is continued any number of times, and the debtor counts the days or half days of missed work.

When the court shifted to video and teleconferences, the conversation changed. “Can you change your lunch break?” “Sure, I can take half an hour.” The fact that most meetings of creditors actually only require about 5 minutes of a debtor’s time laid bare the waste that taking a day off for those least interesting 5 minutes has always been. Nowadays, there’s no need to call a sitter to complete your bankruptcy case.

Attorney Choice

Considerable time goes into learning about bankruptcy law and preparing the documents. Many consumer debtors have never had an attorney for any purpose prior to talking to a bankruptcy attorney. Debtors accustomed to being cornered by creditors are often skittish and uncertain to commit to a process that’s treated like a four-letter word on Wheel-of-Fortune, even if it is elevated by inclusion in the Constitution. Debtors must be able to find an attorney who communicates well, speaks their language, and whom they can trust.

The old way of finding an attorney was to set in-person meetings in the offices of potential candidates and gather information while assessing the attorney’s ability and connection. The Covid crisis did the most to improve attorney selection by eliminating the tradition of in-person meetings with attorneys. Instead, phone and video meetings proliferated. People found a way to measure and then to trust each other on the phone, even for something as critical as the attorney-client relationship. As such, potential bankrupt debtors are able to get to the essence of the conversation much faster and reach out to attorneys outside their immediate area. With the distance burden resolved, and the time investment in the interview process decreased, a debtor’s pool of professionals multiplied. Once selected, follow-up meetings remain largely by telephone, and the burden of using an attorney continues to decline.

Keeping the Good

Debtors reaped great time-saving benefits as their ability to participate in the legal process from home or work increased. Remote hearings and the extension of e-signatures saved debtors millions of miles driven and hundreds of thousands of work hours missed. Although it is unlikely that the bankruptcy courts would have made these changes for fear of negative consequences. But when forced to, the changes succeeded.

Now the courts and participants have seen the benefits of e-signatures and remote hearings. The United States Trustee, the component of the Department of Justice responsible for overseeing the administration of bankruptcy cases, already scours the cases for fraud and abuse. It is time to take stock and measure the price of lowering the threshold of justice to hundreds of thousands of debtors during the crisis. Did fraud increase? Were cases more abusive? If not, can there be any argument for returning the process to status quo ante?

As a precursor, many courts have already begun the process of evaluating making remote court hearings permanent. The Nebraska bankruptcy court already had local rules allowing e-signatures on statements and schedules prior to the pandemic, and the Texas Southern District Bankruptcy court adopted local rule 5005-1(b) during the COVID-19 crisis to permanently allow e-signatures on petitions. These adoptions may become a trend as more courts reckon with the expiration of their emergency orders.

The evidence has been collected, and it may well form the foundation that the courts need to maintain the extended access to justice that we have seen in the crisis. We may get to keep this rare positive legacy of our reaction to the COVID-19 crisis, which would alleviate unnecessary hardships for debtors who have already made the difficult decision to file for bankruptcy.

For more information about Chapter 7 bankruptcy and how you can help low-income clients who have filed for bankruptcy, check out the author’s Bankruptcy Basics for Low-Income Clients 2021 program, available from PLI Programs On Demand.

Carl R. Gustafson is a partner at Lincoln Law, LLP in Pleasant Hill, CA. His practice focuses exclusively on consumer representation in bankruptcy and litigation. Before entering bankruptcy practice, Carl was a legal intern for Global Justice in Rio de Janeiro, Brazil, where he drafted sections of human rights situation reports and submitted them to the United Nations and other international bodies. He speaks Portuguese and Spanish and translates legalese for his client in all three languages regularly.

PLI Programs you may be interested in:

Also available from PLI Press:

Disclaimer: The viewpoints expressed by the authors are their own and do not necessarily reflect the opinions, viewpoints and official policies of Practising Law Institute.

To submit an article for consideration, please contact the editor at:

This article is published on PLI PLUS, the online research database of PLI. The entirety of the PLI Press print collection is available on PLI PLUS—including PLI's authoritative treatises, answer books, course handbooks and transcripts from our original and highly acclaimed CLE programs.

Sign up for a free trial of PLI PLUS at