The current COVID-19 crisis brought with it an emergency of great magnitude, bringing about a historic response from the US government in form of a relief package designed to mitigate the widespread economic hardship being faced by individuals, families, and businesses as a result of the pandemic. The CARES Act, which was signed into law on March 27, 2020, makes remarkable temporary modifications to income requirements under chapters 7 and 13 of the U.S. Bankruptcy Code.

Under Section 1113(b) (1) of the Act, which amends 11 U.S.C. Sections 101(10A) (B) (ii) and 1325(b) (2), “payments made under the Federal law relating to the national emergency declared by the President under the National Emergencies Act (50 U.S.C. § 1601 et seq.) with
respect to the coronavirus disease 2019 (COVID-19)” are excluded from the statutory definitions of current monthly income and disposable income. Accordingly, recovery rebates received by an individual under the Act within six months before filing a bankruptcy petition
would not be included in calculating a debtor’s current monthly income in either a chapter 7 or chapter 13 case. The notable implication of this amendment is that any coronavirus-related payments received under federal law are excluded from the Bankruptcy Code’s definition of
“income” for the purposes of determining chapter 7 or chpater13 eligibility.

CARES Act Raises Small Business Bankruptcy Debt Ceiling to …

In sum, the CARES Act’s biggest impact on consumer bankruptcy law are:

First, any payments to an individual pursuant to the Act do not constitute income when calculating a debtor’s income to determine his or her eligibility to file a Chapter 7 bankruptcy case.

Second, coronavirus-related payments will not be considered in determining a debtor’s projected disposable income for a Chapter 13 plan of reorganization proposed by the debtor.
Third, the Act permits Chapter 13 debtors who have already confirmed a plan to seek a modification to the plan based on a material financial hardship caused by the pandemic, including extending their “payments over a period that expires more than 7 years after the time that the first payment under the original confirmed plan was due.”

Thus, this amendment will benefit both current chapter 13 debtors who did not have confirmed plans as of the date of enactment of the CARES Act, as well as future chapter 13 debtors.

Finally, these modifications will apply to pending chapters 7 and 13 cases, and would sunset one year from March 27, 2020.

Eric Nwaubani is the Managing Attorney of Law Group International Chartered, and has experience in all aspects of bankruptcy law and corporate restructuring.

If you need legal assistance on how the CARES Act affects you, your family or business, contact us today at attorney@lgic.us or call 202-349-5784.

The materials in this website have been prepared by the author for informational purposes only and are not legal advice or counsel. Transmission of the information is not intended to create, and receipt does not constitute, an attorney-client relationship. This information is not provided in the course of an attorney-client relationship and is not intended to constitute legal advice or to substitute for obtaining legal advice from an attorney.