04/23/2020
Bankruptcy Changes
CARES Act § 1113(b) excludes stimulus checks and other payments from being considered as income for purposes of the chapter 7 means test and for determining in chapter 13 cases the amount to pay unsecured creditors. These payments are excluded from “currently monthly income” under Bankruptcy Code § 101(10A) and “disposable income” under § 1325(b)(2). This permits debtors in bankruptcy cases to keep stimulus payments and not have them used to pay creditors or deny bankruptcy relief. This provision applies to any case filed before or after enactment of the CARES Act.
However, the CARES Act does not create an exemption for these payments. Because stimulus payments are refundable tax credits, they may be property of the debtor's bankruptcy estate depending in part on the timing of when they are received, not unlike the receipt of tax refunds and EITC payments. To the extent stimulus payments are estate property, attorneys should attempt to claim them as exempt under available federal or state exemptions, such as wildcard exemptions.
CARES Act § 1113(b) also prevents current chapter 13 cases from failing by permitting debtors to extend the term of their plans in order to have additional time to pay critical debts. Many debtors will lose income and not be able to stay current with plan payments. While courts will likely suspend payments during the crisis in any event, existing law would not have permitted debtors to extend their plans beyond a term of five years. If plans could not be extended, many debtors would not be able to cure mortgage defaults, pay car loans and other secured debt, or pay priority claims such as tax obligations and child support. CARES Act § 1113(b) permits a debtor who has experienced a material financial hardship due, directly or indirectly, to the COVID-19 pandemic to seek a modification of the plan that will extend the period of time for payments on claims for up to seven years after the date the first payment was due after plan confirmation. This provision applies to any chapter 13 case in which the plan was confirmed before enactment of the CARES Act.
The provisions described above will sunset one year after enactment.
U.S. Trustee Program Notice on Continuance of Section 341 Meetings (March 16, 2020): “Effective immediately, all in-person chapter 7, 12, and 13 section 341 meetings scheduled through April 10, 2020, are hereby continued until a later date to be determined. Absent special circumstances, section 341 meetings may not proceed during this period except through telephonic or other alternative means not requiring personal appearance by debtors. Appropriate notice will be provided to parties in accordance with bankruptcy law and rules. Meetings already noticed as telephonic meetings may proceed as scheduled.”
U.S. Trustees Office re Audits: Effective immediately, the USTP is suspending its designation of new individual chapter 7 and chapter 13 cases subject to audit for an indefinite period.
Fair Credit Reporting
CARES Act § 4021 provides less than minimal protections regarding credit reporting. From January 31, 2020 until 120 days after the end of the national state of emergency, if a creditor has made an accommodation (such as a forbearance or workout) for a consumer pursuant to the state of emergency, the creditor shall report that account with the same status as prior to the accommodation to a consumer reporting agency. That is, if an account was current it shall continue to be reported as current, while a delinquent account shall continue be reported as delinquent. The exceptions are (1) the provision does not apply to charged-off accounts and (2) if the account was delinquent and the consumer manages to bring the account current during the period of accommodation, the account shall be reported as current.
Stopping Automatic Payments from Bank Account
When cash is tight, payments that are automatically deducted from a consumer’s bank account may not be the most important bills to pay. Instead the consumer may want to stop those payments and save the money for critical needs. This information from the Consumer Financial Protection Bureau including sample letters which may prove helpful in stopping automatic payments.
Erin K. Brignola, Esquire
Cooper Levenson, Attorneys at Law
30 Fox Hunt Drive
Fox Run Shopping Center
Bear, DE 19701
Direct Dial: (302) 838-2600
Direct Fax: (302) 838-1942
E-Mail: [email protected]
URL: http://www.cooperlevenson.com
Debt Relief Agent
NACBA/ ABI/ DSBA- Vice Chair-Consumer Bankruptcy
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Cooper Levenson, P.A.
New Jersey / Delaware / Nevada / Florida/ New York
