As of March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act, House Resolution (H.R.) 748 was enacted to provide relief for Americans who are facing an uncertain financial future during these troubling times.The stimulus bill makes several changes to existing laws to help consumers.In addition, the Eastern District of North Carolina is also attempting to provide some relief to those who are experiencing some financial hardship due to the COVID-19 pandemic.
What this means for people considering bankruptcy–change in “current monthly income” definition and stimulus checks:
If you are in an active chapter 13 case, the stimulus money will not be going to the Chapter 13 trustee.However, if plan payments are delinquent, a debtor may chooses to use the stimulus money to cure the delinquency.
Stimulus payments made under the CARES Act will now be excluded from the definition of “current monthly income” or “CMI”.Section 1113(b) of the CARES Act will now exclude “Payments made under Federal law relating to the national emergency declared by the President under the National Emergencies Act with respect to the coronavirus disease 2019 (COVID-19).”
This amendment is important because ordinarily, “current monthly income” includes all income from all sources (unless otherwise excluded such as Social Security benefits, etc.).A check of $1,200 to $2,400 for a family during the CMI period could drastically change how the bankruptcy case may move forward.But now, money received under the CARES Act will not be used in determining a debtor’s “current monthly income.”
The “currently monthly income” determination is very important because if a debtor is “above median income” for the debtor’s household size, the debtor may be ineligible for file a chapter 7 case.If the CARES Act stimulus check were not excluded, then that money could be what puts the debtor “above median income” and ineligible for chapter 7.It should be noted that if you are “above median income,” that does not mean that you are automatically ineligible to file a chapter 7 case.It just means there are more factors to consider.
Excluding the stimulus check from the “current monthly income” calculation can also make a difference for chapter 13 cases.If a debtor is “above median income” and chooses to file a chapter 13 case, then the debtor must be in the plan for a minimum of 60 months.If the “stimulus” check puts the debtor over the median income, the stimulus check is excluded and the debtor can propose a minimum plan of 36 months instead of 60.It should be noted that many debtors who are eligible for a 36 month plan propose plans of 60 months for various reasons including what may be more affordable.
A Chapter 13 plan can be changed to last up to 7 years if related to COVID-19:
The CARES Act amends § 1329 of the Bankruptcy Code to allow a debtor to request that a confirmed plan be extended from a maximum of 5 years (60 months) up to a maximum of 7 years (84 months).The request to extend the plan must relate to a “material financial hardship” directly or indirectly related to the Coronavirus pandemic.
If a debtor’s finances are affected by COVID-19 so that it impacts the debtor’s ability to comply with a confirmed plan, then extending the plan for up to 24 months may be an option.This could mean that the plan payments are reduced or if a couple of plan payments are missed, the delinquency could be caught up through the plan extension.
Changes to the Bankruptcy Code are temporary:
The changes discussed above are temporary.Congress has provided for a “sunset” provision which means the changes will revert back 1 year after the CARES act was enacted or March 27, 2021.