CARES Act Makes Pivotal Adjustments to Bankruptcy Code

Robert H. Solomon, PC

Financial Support for Businesses and Individuals During COVID-19

Local, state, and federal governments are scrambling to provide financial support to individuals and businesses amidst the COVID-19 pandemic. The most notable legislation is the Coronavirus Aid, Relief, and Economic Security (CARES) Act, signed into law by the President on March 27th. The $2 trillion package includes stimulus checks, emergency grants, loans, tax credits, and more.

Temporary Changes to the Bankruptcy Code

The act also includes temporary adjustments to the Bankruptcy Code and several provisions that could indirectly affect bankruptcy. As sunset provisions, the adjustments to bankruptcy will end in one year. If you have not already begun your bankruptcy case, you may consider filing sooner rather than later to take full advantage of these temporary benefits.

Whether you are in the middle of a bankruptcy proceeding or you are about to file, the following provisions could significantly impact your case:

  1. Emergency federal payments (e.g. COVID-19 stimulus checks) will not be included in the Chapter 7 means test. To qualify for Chapter 7, debtors generally must make less than their state’s median income. Per the CARES Act, filers can receive and use federal payments without fear of becoming ineligible for Chapter 7.
  2. Emergency federal payments will not be included in Chapter 13 disposable income calculations. In Chapter 13, courts approve a 3-5-year repayment plan in which debtors use all disposable income to pay their creditors. Whatever is left after this period will most likely be discharged. Because COVID-19-related federal payments will not be included in these calculations, debtors can keep the money without having to apply it toward their debt.
  3. Individuals currently in open Chapter 13 proceedings can modify their repayment plans. Previously, repayment plans under Chapter 13 could not be longer than 5 years. Per the CARES Act, filers who experience material financial hardship because of the COVID-19 pandemic can extend this payment period to 7 years, thus reducing their monthly payments.
  4. Enhanced unemployment helps individuals qualify for Chapter 7 bankruptcy. While some courts have historically included unemployment benefits in the Chapter 7 means test, the “enhanced” unemployment benefits per the CARES Act must be excluded from these calculations. Additionally, more people will qualify for bankruptcy because they are now unemployed and have lost the income needed to repay creditors.
  5. Student loan borrowers benefit from a 6-month suspension of both payments and interest accrual. Because student loans are rarely discharged through bankruptcy, this 6-month suspension can provide significant relief for debtors.

Determine if You Are Eligible for Provision Under the CARES Act

The CARES Act is an extraordinarily complex bill. If you want to take full advantage of the relief this legislation offers, retain counsel from our dedicated attorney at Robert H. Solomon, PC. We can carefully assess your current finances to determine whether you are eligible for any given provision under the CARES Act. If you are considering filing bankruptcy, we can help you determine which chapter is right for you and walk you through every step of the process. If you are currently in an open proceeding, we can step in at any time to give you a greater likelihood of a favorable outcome.

The COVID-19 pandemic is affecting all of us, and we want to be your fearless advocate during these uncertain times. To get started with a free, virtual consultation, call (516) 407-8199 or contact us online today. Our services are available in English and Spanish!

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