The CARES Act Provides Relief for Bankruptcy Filers
The Coronavirus Aid, Relief and Economic Security Act (CARES Act) provides temporary amendments to the Bankruptcy Code that provide relief to those filing Chapter 7, Chapter 13, Chapter 11, or in a current repayment plan. These changes will remain in effect for one year after the March 27, 2020 signing of the Act. They also provide clarification to existing debtors who may experience further financial hardship because of the coronavirus COVID-19 crisis.
CARES Act Helps Resolve Confusion Over Stimulus Payments
Some taxpayers have received coronavirus-related payments from the federal government. These payments may include the $1,200 per single taxpayer, $2,400 per married filers, and the additional benefit of $500 per child. At this time, it is unknown if future stimulus payments like these will be made. There are additional stimulus payments of $600 per week for eligible taxpayers who are receiving unemployment because they lost or were furloughed from their jobs.
Under the CARES Act, coronavirus-related payments from the federal government will not be calculated into a debtor’s income to determine whether he or she is eligible to file Chapter 7 or 13. Additionally, these payments will not be considered in determining a debtor’s disposable income for a Chapter 13 repayment plan.
Relief that the CARES Act Offers Current Bankruptcies
One of the fears facing current bankruptcy debtors is how disruption of income could prevent them from making their monthly payments to their trustees. Individuals may request a modification of their repayment plan based on financial hardship caused by the pandemic. They may also extend their payments for seven years after the due date of their initial plan payment.
CARES Act Impact on Chapter 11 Filings
Many small businesses have found themselves in financial turmoil because of being required to temporarily shut down to help stop the spread of COVID-19. Prior to the CARES Act on February 19, 2020, the Small Business Reorganization Act (SBRA) was put into effect that makes it less expensive and easier for small businesses by streamlining the process to file for Chapter 11. The maximum debt, including secured and unsecured debts for filers, was set at $2,725,625. The CARES Act has increased that debt limit to $7.5 million dollars for cases filed after March 27, 2020. This limit will also remain in effect for one year.