Temporary changes to the bankruptcy code
The Coronavirus Aid, Relief and Economic Security (CARES) Act, was passed on March 27th of 2020. The Coronavirus has caused economic difficulties for many individuals throughout the past few months. The CARES Act was signed into law in an effort to bring some financial relief to the people of the United States who have been negatively affected by COVID-19. The Act amends the bankruptcy code to provide additional relief to small businesses and individuals who are in a bankruptcy case. Unless extended, these provisions will cease to be effective in March of 2021, and the bankruptcy code will return to normal.
The CARES Act provides a one-time stimulus payment to most individuals. The Act does not allow stimulus funds to be included in the traditional definition of income under the bankruptcy code. The stimulus funds are not taken into account when determining eligibility to file a Chapter 7 bankruptcy.
Likewise, the funds are not considered disposable income in a Chapter 13 case. In essence, the Act ensures that the stimulus funds remain in the hands of individual consumers and that the funds will not negatively impact the chances of an individual to qualify for bankruptcy relief.
Modifying an existing plan
For debtors who were already in a confirmed bankruptcy case at the time the Act was passed, relief is provided through the possibility of adding additional months onto their plan.
A traditional Chapter 13 case has a maximum length of 60 months. The CARES Act allows bankruptcies to be stretched out for a total run length of 84 months from the date the first plan payment was due. This extension is only available to debtors whose cases were confirmed before March 27th, 2020. Any case confirmed after that date will not be allowed to modify the plan length under the CARES Act.
Adding extra months to a case can lower the monthly amount required to be paid to the Trustee. However, there are also undesirable effects associated with extending a bankruptcy case. The modification is not automatically granted. A debtor must qualify to extend their plan. The Act states that the debtor must have suffered a “material financial hardship due, directly or indirectly, to the coronavirus disease 2019 (COVID–19) pandemic.”
COVID-19 has created astronomical unemployment figures, so extending a plan may seem like a solution to functioning in a time of reduced income due to the pandemic. However, bear in mind that stretching out a case for an extra twenty-four months means paying into the case every month for an additional two years.
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