A typical Chapter 13 repayment plan lasts 3-5 years, but a lot has changed in the world in only 3-5 months, with Covid-19, the resulting economic fallout and now flaring social tensions. A record 40 million Americans have lost their job, some of whom are New Yorkers that were already in Chapter 13 proceedings. We have many clients who have been diligently working on their plan for years now only to be laid off due to Covid-19 in the last couple of months. Without their steady employment, it’s likely that many debtors in Chapter 13 will no longer be able to complete their plans. Fortunately, there are some options for our clients in this situation.
The fallout from Covid-19 was so widespread as to spawn the most extensive stimulus plan in US history with the Coronavirus Aid, Relief and Economic Security Act (CARES Act.) Our last blog spoke on the specific part of the legislation that relates to the bankruptcy code. Please read the post for specifics, but for our purposes here, realize the bankruptcy court is likely to see a flood of new bankruptcies as well as requests to modify existing plans as a direct result of the pandemic. The current financial climate seems to favor debtors, but every case is unique. If you have lost your job while in Chapter 13, your attorney might first look to modify your payment plan. A motion can be filed that may lower your monthly payment, and job loss is a primary reason for permitting plan modifications. Existing plans and plans that have yet to be confirmed can be modified, or possibly extended under provisions from the CARES Act.
Your attorney might alternatively ask for a premature hardship discharge if your debt scenario is beyond repair with a plan modification. A hardship discharge will remove your Chapter 13 plan altogether but was not readily granted by most bankruptcy judges before the Covid-19 era. Hardship discharges require proof that there has been a permanent change to your ability to make a living beyond temporary unemployment. This would typically be something like permanent disability related to an accident. It is yet to be seen whether Covid-19 will affect a hardship discharge, but the lasting medical effects for many people in Bankruptcy could result in permanent disability for many who have had the illness.
Many of our clients will also be eligible to convert their Chapter 13 case to a Chapter 7 if they have been recently laid off. You probably had this conversation with your attorney when you were first considering your bankruptcy options months or years ago. Many people were making too much money to qualify for Chapter 7 back then. If you lost your job due to Covid-19, you might now pass the bankruptcy means test allowing you to convert your case to Chapter 7.
If you are currently working through your Chapter 13 payment plan but have lost your job due to the pandemic, your attorney will have several options for your case, including payment plan modification, hardship discharges, and Chapter 7 conversions. The CARES Act is helping those who are considering or already in Bankruptcy with some additional consumer protections. If you need help and are thinking about your bankruptcy options in New York, understand that a lot of people are in the same position, and the government is making historical changes to get as many people in debt back on their feet as possible. If you have questions about your case or maybe recently unemployed and thinking about Bankruptcy for the first time, please give our law offices to arrange a free bankruptcy consultation.