Bankruptcy During The CARES Act

(Corona Virus Aid, Relief, & Economic Security Act)

Even if you haven’t been tracking the news about COVID19 closely, someone has likely informed you that the government will be releasing an economic stimulus check across the country to help counteract the impact Coronavirus has had on many families and businesses. On March 27, 2020, the CARES act was enacted in an attempt to relieve this economic hardship. This act has the ability to provide relief for small business debtors and individual debtors under both Chapter 7 and Chapter 13 bankruptcy filings. This relief is currently temporary and set to expire March 27, 2020.

What does this mean for my bankruptcy?

The CARES act stimulus check you will be receiving will not be accounted for when determining eligibility for Chapter 7 or Chapter 13 bankruptcy filings and will not be considered as part of a debtor’s disposable income. CARES is also allowing those currently making payments under a Chapter 13 bankruptcy to extend their plans upon request for up to seven years (as opposed to the original three to five) after proving “material financial hardship” as a result of COVID19.

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Will I qualify if I haven’t yet filed for bankruptcy?

The new act has “increased the eligibility threshold”, at least for small business owners, which may be at the biggest risk of needing to file bankruptcy as their sales have plummeted during the global pandemic. Many employees of such businesses, now facing unemployment or significantly cut hours, may also be questioning if bankruptcy is right for them as they face mounting financial hardship as a result of COVID19.

While eligibility limitations and current plan extensions are available now, keep in mind when filing that special circumstances are currently set to expire one year after the enactment of the CARES Act.

Current Bankruptcy Claims & Plans

If you are currently in the midst of filing for bankruptcy or are participating in a Chapter 13 plan, there is a good chance you were experiencing financial hardship prior to COVID19. If you’re to maintain property after the completion of a bankruptcy claim, it is expected and anticipated that you will continue to make regular, timely mortgage (or car) payments on these secured loans.  Under the CARES Act, you can now seek a temporary forbearance of mortgage payments for up to six months with the option to request additional forbearance of another six months. There shouldn’t be any debate over whether or not you’re granted the forbearance from your loan servicer if you’re claiming financial hardship due to COVID19. There should also not be any additional interest accrued or fees assessed for this forbearance and your credit rating will not be impacted.

While forbearance may sound ideal right now, you will want to have a plan in place for when your payments come due. Mortgage payments will continue to accrue, even if interest and fees do not. Catching a break for the next six months to one year may put you in additional financial hardship when payments are expected to resume.