Debt Relief During COVID-19: The CARES Act

The CARES Act, also known as the Coronavirus Aid, Relief, and Economic Security Act, was enacted by President Trump in March 2020 because of the economic downfall due to COVID-19. For individual debtors seeking relief from bankruptcy due to the Coronavirus, the CARES Act provides economic assistance. Read along as we break down what this $2.2. trillion economic relief package consists of and how it could help debtors.

What Is the CARES Act?

The CARES Act launched March 27, 2020 and provides relief for debtors struggling with financial hardship due to COVID-19. The relief includes $300 billion in one-time stimulus payments to individual Americans, $260 billion in increased unemployment benefits, the Paycheck Protection Program that provides forgivable loans to small businesses with an initial $350 billion in funding (later increased to $669 billion), $500 billion in aid for large corporations, and $339.8 billion to both local and state governments.

Chapter 7 and Chapter 13 Debtors & Stimulus Payments

The CARES Act provides short-term relief to individual debtors under Chapter 7 bankruptcy and Chapter 13 bankruptcy who have been impacted by COVID-19. The reason these were put into place was to prevent the stimulus payments from impacting a debtor’s eligibility to file under either bankruptcy chapter.

The CARES Act gave many Americans a one-time stimulus payment. For those in Chapter 7 filings, this stimulus payment was not considered “monthly income” when determining debtor’s eligibility. In Chapter 13 filings, the stimulus payments are excluded from determining a debtor’s disposable income.

The CARES Act provides relief to Chapter 13 debtors if they experienced “material financial hardship as a direct or indirect result of COVID-19.” With soaring unemployment rates and business closures, many individuals will meet this court-issued requirement.

The CARES Act and Consumer Bankruptcy

Under Chapter 13 bankruptcy, also known as consumer bankruptcy, an individual will enter a payment plan that lasts between 3 to 5 years – income plays a key factor in determining this duration. The CARES Act has declared that all payments related to COVID-19 pandemic relief will be excluded from what constitutes an individual’s income under Chapter 13.

A Chapter 13 debtor can, with the court’s permission, amend his or her confirmed plan if experiencing a material financial hardship due, directly or indirectly, to COVID-19.

Additionally, individuals who filed Chapter 13 bankruptcy plans before the CARES Act can apply for an extension of their payment plan from 3 to 5 years to 7 years. All bankruptcy-related provisions in the CARES Act are active for one year, expiring on March 27, 2021.

The CARES Act and Chapter 7 Bankruptcy

For cases filed under Chapter 7 bankruptcy, the CARES Act has mandated that any payments made from the Federal government relating to the Coronavirus be exempt from the calculation of current monthly income. Currently, monthly income is a factor used to determine if debtors are eligible for relief under chapters of the Bankruptcy Code.

Change in Amendments for Debtors Filing Under Chapters 7 and 13

The CARES Act made amendments to the Bankruptcy Code to assist Chapter 7 and Chapter 13 debtors for up to one year. These amendments are as follows:

• The first amendment states that any COVID-19-related payments received under federal law will be excluded as a determining eligibility income factor for individuals filing for Chapter 7 or 13 bankruptcy.

• The second amendment excludes any COVID-19-related payments made under federal law from being calculated as disposable income to confirm a Chapter 13 wage earner plan.

• The third amendment allows individuals to seek amendments to their Chapter 13 wage earner plan if they are experiencing financial issues due to COVID-19, which may include extending their payments for up to 7 years after their initial payment is due.

Contact Our Lawyers Today!

Changes to Chapter 7 and Chapter 13 Bankruptcy Code have offered some relief to individuals during the Coronavirus pandemic. It is not clear if these amendments will extend past March 27, 2021, but for now the assistance is appreciated. If you need help determining what these amendments to the Bankruptcy Code might mean for your individual situation, do not hesitate to call our firm. We are happy to discuss your options and do our best to work with you as your transition out of bankruptcy.

Contact us online today or call us at (423) 299-4489 to learn more about our bankruptcy services.

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