The CARES Act’s Benefits for Chapter 13 Debtors

The CARES Act was signed into law by President Trump on March 27, 2020. The CARES Act helped small businesses affected by the COVID-19 epidemic with provisions such as the Payback Protection Program. What many people do not realize is it contains several provisions which could be extremely helpful for individuals in a Chapter 7 or Chapter 13 bankruptcy.

One of the most significant changes is that a confirmed Chapter 13 plan may be modified and extended up to Seven (7) years due to Covid-19 hardships. Under 11 U.S.C. §1325, a Chapter 13 payment plan will range from three to five years, unless all unsecured debt can be paid sooner. The CARES Act provides that Chapter 13 debtors who are making payments under a confirmed Chapter 13 plan (confirmed before the date of the enactment of the CARE Act) may extend their Chapter 13 case up to seven (7) years. To extend the plan term, the debtor must have experienced a material financial hardship due to COVID-19, and there must be notice and hearing on the modification.

Some of my Chapter 13 bankruptcy clients have had hours decreased and been furloughed because of COVID-19. This has made it difficult if not impossible to make their Chapter 13 plan payments. The CARES ACT Bankruptcy provision allows debtors to stretch a case out an extra 2 years to lower either grant a temporary forbearance or lower their plan payments. This has been a successful option for several of my clients.

For both Chapter 7 and 13 bankruptcies, the CARES Act modifies the definition of “current monthly income” in the Bankruptcy Code to exclude the payments made under the National Emergencies Act as a result of COVID-19. Additionally, the CARES Act excludes those payments from the disposable income requirement in 11 U.S.C. §1325(b)(2). Any money received from a stimulus check or unemployment due to COVID-19 will not count against the debtor in their Means Test. Additionally, the CARES Act excludes those payments from the disposable income requirement in 11 U.S.C. §1325(b)(2).

If you are in a bankruptcy case and have experienced a material hardship due to COVID-19, call your attorney immediately to discuss your best option moving forward. If you are experiencing hardships due to the virus or for any other reason, call Kelley, Lovett, Blakey & Sanders for a free consultation and a path to a fresh start.

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