How Will the New Stimulus Bill Affect Bankruptcy?

On March 27, 2020, President Trump signed the Coronavirus Aid, Relief, and Economic Security (CARES) Act into law. This follows the Small Business Reorganization Act (SBRA) that took effect in February 2020. Both of these measures have an impact on those contemplating bankruptcy, or already in the bankruptcy process. Across the United States, people have more household debt now than at the height of the recession – $14.15 trillion as of the fourth quarter of 2019 compared to $12.68 trillion during the third quarter of 2008. And now, millions of Americans are losing their jobs because of the COVID-19 pandemic. Since March 15, nearly 10 million people have filed first-time jobless claims; many of them may be looking to bankruptcy for relief.

CARES Direct Payments

Included in the CARES Act are one-time payments to qualifying individuals of $1200 for anyone making under $75,000 annually, and $500 for each dependent child. If you have made more than $75,000, but less than $99,999, you will still receive a payment, though it will be less than $1,200. The amounts of the direct payments for individuals making more than $75,000 and couples making more than $150,000 will decrease $5 based on every $100 an individual makes over $75,000. An individual with an income of $76,000, for example, would receive a $1150 payment.

CARES and Bankruptcy

Chapter 7

The CARES Act makes temporary changes to bankruptcy law. Those filing under Chapter 7 need to meet a means test; they must not make more than their state’s median household income. For Wisconsin, that is $62,629 (as of 2018). The CARES Act excludes the direct payment from that calculation. So for a debtor just on the borderline, this extra income will not count as “current monthly income” when determining eligibility to file Chapter 7 bankruptcy.

Chapter 13 – Disposable Income

For those who have filed Chapter 13 bankruptcy, these direct payments will not count as “disposable income” for purposes of Chapter 13 plan confirmation. Those debtors are also now permitted to seek modifications of their confirmed Chapter 13 plans if “the debtor is experiencing or has experienced a material financial hardship due, directly or indirectly, to the coronavirus disease 2019 (COVID-19) pandemic.” The modification can be approved after notice and a hearing.

Chapter 13 – Extended Payment Plan

Debtors experiencing such hardships because of the COVID-19 pandemic are also allowed to extend their plan payments for up to seven years after the time that the first payment under their original confirmed plan was due. So if you had a repayment plan of three years, it can be extended another four years. This means that the payments you are currently responsible for would decrease, perhaps substantially..

SBRA and Bankruptcy

The SBRA amends Chapter 11 and creates Subchapter V which applies both to small businesses and to individuals. It significantly increases the amount to qualify for the bankruptcy process. Debtors can have up to $7,500,000 in secured and unsecured debt and still qualify to proceed under this streamlined bankruptcy process. Previously, the debt limit was $2,725,625. With 38 states in complete lockdown and all “nonessential” businesses closed to the public, small business owners can be feeling desperate. For many small business owners who are facing a sudden and dramatic drop in income, this may bring some hope. Small businesses filing under Subchapter V may have a clearer way to obtain relief and maintain their ownership of the business.

The measures that the federal government has put in place to protect the economy during this COVID-19 pandemic can provide some substantial relief to those considering or in the process of bankruptcy proceedings. It’s important to remember, though, that the provisions are temporary. These changes expire precisely one year after their introduction. So as of March 27, 2021, they end. If you are experiencing financial hardship, the CARES Act and SBRA may mean that it is the best time for you to file for bankruptcy. Consult one of the experts at Burr Law for guidance.

How Can I Manage My Debt During the Coronavirus Crisis?

In order to combat the COVID-19 pandemic, all but three states have ordered all non-essential businesses to close. Most of the country’s people are in lockdown in their homes, and millions have therefore lost their jobs. Since March 15, nearly 10 million people have filed first-time jobless claims. All of this means that for millions of Americans, managing their debt has suddenly become unmanageable. If you find yourself in this situation, don’t despair. You still have options. In this blogpost, we will look at ways of dealing with different kinds of debt, and explore bankruptcy options.

Student Loans

The Coronavirus Aid, Relief, and Economic Security (CARES) Act that President Trump signed on March 27, 2020 suspends payments on federal student loans for six months, until September 30, 2020. During that time, interest will not accrue, either. This suspension is automatic, so you don’t need to fill out any forms or formally request it. The CARES Act also stops collection actions, wage garnishments, and treasury offsets; and it prohibits negative credit reporting due to your student loans. The payment pause and interest waiver includes Federal Parent PLUS loans in addition to Federal Stafford Loans, Federal Grad PLUS loans and Federal Consolidation Loans. It is important to remember that this only applies to loans owned by the federal government. It does not apply to private student loans, student loans acquired from state lenders, or, if you have consolidated your student loans through a third-party lender.

Mortgage, Rent Payments, and Foreclosures

The CARES Act provides for forbearance of mortgage payments. It also provides for a 60-day foreclosure moratorium for federally backed mortgage loans like Fannie Mae and Freddie Mac, as well as FHA-insured, VA-insured or guaranteed loans, and FDA guaranteed loans. This covers almost all household mortgages; many banks and mortgage companies have suspended all foreclosure proceedings as well. In the state of Wisconsin, Governor Tony Evers issued an emergency order on March 27, 2020 banning all evictions and foreclosures for 60 days, thereby including any mortgages not covered by the CARES Act and extending protection to renters. If you are a renter, you are still responsible for your monthly rental, but if you cannot pay it, your landlord cannot begin eviction proceedings. The best course of action is to talk to your landlord to see if you can work out some kind of agreement. Wisconsin has also instituted a moratorium on utility shutoffs.

Credit Cards and Other Loans

Many credit card issuers are offering assistance to consumers during the COVID-19 outbreak in various forms. Available help includes credit line increases, collection forbearance, and skipped payments. You should check the website of your credit card companies to see what help you could possibly receive. Banks, credit unions, and other financial institutions are offering loan extensions and deferred payment options, among other things, if you’ll have trouble making payments on a personal loan or small business loan. A number of auto loan companies are offering payment delays as well.

Bankruptcy

Another option to consider right now is bankruptcy. The CARES Act modified the Bankruptcy Code making it easier for individuals to file for Chapter 7 bankruptcy, as well as making changes to Chapter 13 bankruptcy. If you are a sole proprietor or self-employed person, the Small Business Reorganization Act that went into effect in February 2020 could also be a source of relief for you. It extended the amount of secured and unsecured debt you could have in order to qualify for the streamlined bankruptcy offered

in Chapter 11. If you have ever considered filing bankruptcy, now may be the time to follow through on it. Contact one of the experts at Burr Law to discuss your situation.

The COVID-19 pandemic is changing all of our lives in significant ways. The ways in which you have always managed your debt may no longer work for you. There are options available to you, though. If you are concerned about your debt situation, you should contact the professionals at Burr Law. We’re here to help your finances survive this coronavirus.