Posted: April 7, 2020
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“Cares Act”) was passed into law. The Cares Act provided significant economic help to consumer debtors (individuals) during this Covid pandemic. Specifically, it helps people who are presently in bankruptcy, or are contemplating filing personal bankruptcy. Below are some of the most relevant changes.
Income: Economic stimulus payments are not considered income.
The calculation and determination of a household’s “current monthly income” is a significant factor in bankruptcy. In Chapter 13, proposed plan payments to creditors is based upon the remaining balance of your current monthly income, less your monthly household expenses. In Chapter 7, if your disposable income (the same calculation as above) is too large in the means test, you may not be eligible to seek Chapter 7 protection and be compelled to file Chapter 13 to pay back your creditors.
Under the Cares Act, any monies received by debtors from federal economic stimulus payments shall NOT be included in either the Chapter 7 means test, or in the disposable income analysis of Chapter 13 to determine your plan payments. As a result, any economic assistance you receive from the federal government under the Cares Act shall not economically harm or decrease your ability to seek bankruptcy protection.
Chapter 13 Plan Payments: The length of term of a Plan may be extended to 7 years.
Under Chapter 13, a household or individual proposes a plan of reorganization, which is typically 5 years in length, which proposes how the debtor is going to pay back creditors. Once a plan is “confirmed” by an Order of the Court, that plan is approved and the debtor must make continuous monthly plan payments to the Chapter 13 trustee, as well as any secured creditors. Plan payments are based on the current monthly income, less household expenses, on the confirmation date.
Given the nationwide statistics of the incredible volume of people who have sought unemployment assistance in the last 2 weeks, it is clear that many Chapter 13 debtors, with confirmed plans, are presently unemployed. Thus, it is equally clear that the source of revenue for the monthly income test has disappeared for those now unemployed debtors. Under the Cares Act, however, Chapter 13 debtors who have confirmed plans may seek a modification of the plan to extend the length of the term to 7 years, as opposed to 5 years. The 7 year term begins to run from the month the first payment under the plan was due.
In order to modify the plan, Chapter 13 debtors will be required to demonstrate that they suffered a “material financial hardship” caused by the Covid pandemic. While the legal elements of what a “material financial hardship” have not yet been considered by Courts, it appears that if debtors with confirmed Chapter 13 plans have lost employment, or suffered a decrease in income as a result of Covid, those debtors have the opportunity to extend the length of the plan to 7 years. Please note, those individuals who are presently in Chapter 13, but have not yet obtained a confirmation Order, are not eligible for a 7 year plan term.
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Bankruptcy is a complex legal process, with significant benefits for those in need. It is critical that you consult with an experienced bankruptcy lawyer to go over all of your options and to understand your rights. Kirschenbaum & Kirschenbaum has over 45 years’ experience in dealing with all bankruptcy matters. Please contact one of our attorneys today.
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