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CARES Act Includes Important Bankruptcy Changes

The CARES Act was signed into law.

“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.
  • 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.”