After two months of pain and financial despair from the Covid-19 Pandemic, we are starting to see the expected economic fallout and a rush of new consumer bankruptcy filings in New York City. While it’s not a magic bullet, the CARES Act (Coronavirus Aid, Relief, and Economic Security Act) has provisions meant to offset the financial turmoil our locked-down nation is experiencing. Beyond stimulus checks, there are also several beneficial changes to Chapter 7 and Chapter 13 Bankruptcy laws. Without extensions to the current legislation, these temporary provisions will remain in effect for one year from March 27, 2020, or the signing of the new law.
One of the essential modifications the CARES act has brought to the bankruptcy code is changing the definition of income exclude stimulus payments made from the Coronavirus relief efforts. To qualify for either Chapter 7 or 13, your monthly income and disposable income must fall below a certain threshold. The recent stimulus checks of $1200 per individual would not be included in this calculation. This accordingly also changes the definition of “disposable” income for those debtors who may be considering a Chapter 13 repayment plan. For many on the financial edge, this will make the difference towards qualifying for bankruptcy protection. The goal of the legislation, in either case, is to ensure the stimulus payments will not affect your eligibility to file for bankruptcy.
Beyond changing the definition of income, the most significant effect the CARES Act will have on bankruptcy is a new provision allowing plan modifications or payment plan extensions for those already in Chapter 13 proceedings. Chapter 13 filers typically enter a 3-5 year repayment plan. Under the new law, those who had a confirmed repayment plan before the CARES Act was signed can modify their repayment plan to be extended to up to seven years from the typical three to five. To qualify for this modification, a debtor must experience “material financial hardship” directly or indirectly from the Covid-19 pandemic. A hearing is required to modify a payment plan, but it is still unknown as to what the bankruptcy courts in New York consider a materiel financial hardship. How widely the court decides to interpret this is yet to be determined, but it’s clear that these changes were meant to help debtors during such economically painful times. We can hope that with 40 million unemployed Americans that bankruptcy courts will be generous with this provision. Still, modifications to existing Chapter 13 repayment plans will ultimately play out on a case by case basis. Filers who were already in Chapter 13 with a confirmed repayment plan have up to a year from the signing of the CARES Act to modify their plan or March 27, 2021.
When it comes down to it, however, the CARES act was only meant to provide temporary relief and to keep millions of Americans from outright ruin. For most New Yorkers, the $1200 check has long been spent and was just a drop in the bucket anyway. To curb the financial woes, the Coronavirus has unleashed we will need more than a one-time stimulus check and a temporary boost to unemployment. Many struggling New Yorkers who never would have thought about bankruptcy in the past are starting to consider the legal protection consumer bankruptcy provides. If you have been struggling to make your ends meet and have been financially disrupted by the Covid-19 crisis, it may be time to look at Chapter 7 or Chapter 13 bankruptcy with an experienced bankruptcy attorney. If you live in New York and would like to weigh your options, please contact our offices for a free bankruptcy consultation. Our law firm is here to help, and you are not alone.