COVID-19 and Bankruptcy

We are living in strange times, indeed. But for those of us who were living on the financial edge before current events may have laid a knock-out blow, government “relief” may be simply too little too late. On March 27, 2020, the US government passed an economic stimulus law that is intended to promote economic growth during the current downturn, the bill Is called the CARES Act (Coronavirus Aid, Relief and Economic Security Act) and it is designed to provide temporary assistance to Americans who find themselves financially impacted as a result of our collective effort to combat the spread of the pandemic Novel Coronavirus Disease. Aside from the heavily reported one-time stimulus payments many people can anticipate, the law provides some meaningful temporary revisions to the Bankruptcy Code that will provide help that the stimulus payment cannot. A summary of some of the provisions follows:

  • Amends the Small Business Reorganization Act of 2019 (SBRA) to increase the eligibility threshold for businesses filing under new subchapter V of chapter 11 of the U.S. Bankruptcy Code from $2,725,625 of debt to $7,500,000. The eligibility threshold will return to $2,725,625 after one year.
  • Amends the definition of “income” in the Bankruptcy Code for chapters 7 and 13 to exclude coronavirus-related payments from the federal government from being treated as “income” for purposes of filing bankruptcy.
  • Clarifies that the calculation of disposable income for purposes of confirming a chapter 13 plan shall not include coronavirus-related payments. 
  • Explicitly permits individuals and families currently in chapter 13 to seek payment plan modifications if they are experiencing a material financial hardship due to the coronavirus pandemic, including extending their payments for up to seven years after their initial plan payment was due.

Please note that the law, as enacted, failed to automatically “exempt” the stimulus payments from consideration for payment to your creditors if you plan to file a Chapter 7 Bankruptcy. So, unless there is an available exemption in your state or federal law, a Bankruptcy Trustee may seize these funds for the benefit of unsecured creditors.  A knowledgeable Bankruptcy Lawyer can assist in navigating the nuance of available exemptions in light of the shortcomings of this new law.

Contact LoBue Law, PLLC at (972) 694-6400 to make an appointment for a free case evaluation.