Bankruptcy Law: CARES Act and how it affects your bankruptcy case

Attorney Susan Cress Browning

The Coronavirus Aid Relief and Economic Security Act (CARES Act) was enacted on March 27, 2020 in response to the dramatic impact COVID-19 has had on the economy.  In particular, there are several provisions that provide relief for current and future consumer and business bankruptcy debtors.

Stimulus payments are not “income”

The first of these provisions provides that economic impact payments provided to debtors from the government due to COVID-19 is not to be considered income for the purposes of calculating current monthly income or for calculating disposable monthly income for a chapter 13.  These funds will not cause you to be disqualified from Chapter 7 or increase your payback in a Chapter 13.  The practical reason for this is that these are funds that will not be received on a regular basis and therefore should not be considered as regular income for the debtor.

Chapter 13 plans may be modified to extended

Additionally, if you are in a Chapter 13 case that was confirmed prior to enactment of the CARES Act, you may file a motion to modify your bankruptcy plan to extend your plan up to seven years from the date of confirmation.  The debtor must be able to show a “material financial hardship” due to the COVID-19 crisis.  The concern with this provision is, what aid is available for the debtor who has filed but has yet to have their case confirmed?  They are certainly not immune from the financial crisis that has befallen our community.   It is possible that lawmakers will take up this issue, recognizing this limitation will impact many chapter 13 debtors.

New Small Business Reorganization Act

For those businesses who have struggled during this crisis, the CARES Act sought to boost the benefits afforded by the recently enacted Small Business Reorganization Act (SBRA).  The Act increases the debt limits created by the SBRA from $2.725 million to $7.5 million.  This will be a significant boon to those businesses that were previously unable to benefit from the SBRA provisions and have now been affected by the COVID-19 downturn in the economy.

The benefits of the CARES Act will only be available, per the Sunset provision of the Cares Act, for one year from enactment.  The concern is that this pandemic will have lasting effects that extend well beyond this timeframe and one year will not be long enough to provide a meaningful benefit to bankruptcy debtors.

Health and Economic Recovery Omnibus Emergency Solutions Act

In further efforts to restore our nation’s economic balance, the House passed legislation called the HEROES Act (Health and Economic Recovery Omnibus Emergency Solutions Act).  The goal of this law is to prevent discrimination against bankruptcy debtors who request hardship assistance from creditors, increase debt limits for Chapter 13, and allow debtors additional time to catch up mortgage arrearages in Chapter 13.  This legislation is expected to stall in the Senate.


We will update this once new information becomes available.

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