Chapter 13 Bankruptcy changes to help people affected by COVID
The CARES ACT recently enacted created a novel change to Chapter 13 Bankruptcy Plans by extending payments from 60 months to 84 months. This will allow current and new petitioners to request to have an 84-month plan. This will allow debtors who were unable to qualify before to now qualify.
The CARES Act (the “Act”) excludes Coronavirus related payments from the definition of disposable income and the Bankruptcy Estate, i.e. the government stimulus check. Receiving the stimulus check within 6-months of filing a Chapter 7 Bankruptcy will therefore not disqualify a Debtor from filing a Bankruptcy under Chapter 7. While the Act does not explicitly state this applies to Chapter 13, most Trustees, even before the passing of the Act, have stated they would not be pursuing that income.
If you have a current Chapter 13 matter the Chapter 13 payment Plan can be modified, and the payments extended to 84-months or 7-years. Since many Chapter 13 Plans are based on paying mortgage or auto loan arrears, or curing tax debt, this will provide significant relief, and a substantially lower payment, for most Chapter 13 Debtors. The logic is that the longer the payment plan, the more affordable the payment becomes.
The modification provision applies to Debtors who have experienced a financial hardship related either directly or indirectly to COVID. The simple addition of “indirectly” to the Act, gives the Bankruptcy Attorney the ability to modify Plans. Fur discussion sake the broad definition of “directly or indirectly related” could include the following:
• if a Debtor or spouse or family member was diagnosed with COVID,
• if the Debtor is providing care to a diagnosed person,
• if the Debtor’s child cannot attend school in-person and had to leave their job to provide educational services,
• if the Debtor can’t go to work because of quarantine or due to being advised by a medical provider to self-quarantine,
• if a Debtor was unable to work with a prospective employer,
• if the Debtor had to quit their job as a direct result of COVID,
• if the Debtor’s place of employment closed.
In essence, this applies to most debtors.
This is just a small sampling of the changes to Bankruptcy Law. If you are considering Bankruptcy Protection, please call us today to schedule a telephone, zoom, or in-person consultation.
This is just a small sampling of the changes to Bankruptcy Law. If you are considering Bankruptcy Protection, please call us today to schedule a telephone, zoom, or in-person consultation. We assist clients in the Riverside County, San Bernardino, and San Diego Counties.