How the CARES Act Affects Bankruptcy

CARES Act bankruptcy

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As most people know, the CARES Act was passed in March of this year in an effort to alleviate or mitigate the economic damage caused by Covid-19.  The CARES Act created certain financial benefits for individuals that could possibly impact Debtors or potential Debtors in Chapter 7 and 13 bankruptcy.

CARES Act & Bankruptcy

In a bankruptcy case, all income and assets must be disclosed to the court.  However, the CARES Act specifically excluded the stimulus payment from being considered as current monthly income.  Additionally, the Act stated that any payments related to the pandemic would not be considered disposable income either.  This means that any payments under the CARES Act would not be considered in determining eligibility for filing bankruptcy or for calculating what would have to be repaid to creditors by the debtor.
The CARES Act created a legal entitlement for many people to receive at least $1200.  This entitlement is an assist that would ordinarily have to be disclosed and possibly turned over to the Trustee for the benefit of the creditors.  This too, has seen a change.  The Office of the United States Trustee issued a statement that indicated stimulus payments would not be administered by Trustees based on the intent of the Act, and additionally may be protected and exempt under public support exemptions.  In short, anyone filing bankruptcy is going to be able to keep their stimulus funds.
One additional change the CARES Act has on bankruptcy is specific to Chapter 7.  Under the current Bankruptcy Code, Chapter 13 plans are limited to 5 years absent extraordinary circumstances.  Under the language of the Act, Chapter 13 cases could be extended up to 7 years due to the financial impact Covid-19 has had on the economy.  So, cases that were confirmed prior to the date the CARES Act was passed, could be extended up to 24 months longer than generally allowed if the Covid-19 pandemic caused that Debtor a material financial hardship.
The provisions in the Act are limited to use or implementation for one year from the enactment of the Act.  And, while there may be some dispute about what is a material financial hardship, the CARES Act seeks to reduce the impact Covid-19 has on the bankruptcy process.
If you need additional information , please contact our W M Law office at 913-422-0909 to schedule a free consultation with one of our bankruptcy attorneys.
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Jeffrey L. Wagoner


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