CARES Act offers key bankruptcy provisions
In such uncertain times, it is natural for individuals and small businesses suffering from financial hardship to contemplate the protections offered by the bankruptcy process. The CARES Act — passed by Congress in March to help address the economic impact of the COVID-19 pandemic — includes provisions to assist individuals and businesses seeking the types of relief granted by a bankruptcy proceeding.
For those who are forced to miss mortgage payments, the CARES Act provides for most lenders to offer the homeowner a forbearance, or suspension, of payments for an initial period of three months. This may be extended for up to one year. Not all mortgage loans fall under the CARES Act so you should check with your mortgage lender or servicer for more information.
The CARES Act and Consumer Bankruptcy
For those who are delinquent on other bills, a Chapter 13 filing gives individuals immediate protection from their creditors and filers enter into a repayment plan lasting three to five years, largely based on one’s income. The CARES Act provides that payments related to COVID-19 pandemic relief do not count as disposable income for purposes of Chapter 13. In other words, COVID-19 pandemic relief payments will not have to be applied toward repayment of debts. In addition, the extra income is not a factor that could extend a three-year plan to a five-year plan. The provisions of the CARES Act increase the amount of money a Chapter 13 debtor can keep rather than paying it out to unsecured creditors.
For Chapter 13 payment plans that were filed before the enactment of the CARES Act, one facing financial hardship as a result of the pandemic can apply for an extension of the payment plan from three or five years to up to seven years. This can substantially reduce your monthly payment obligation.
All bankruptcy-related provisions in the CARES Act are available for one year from the date it was enacted, expiring on March 27, 2021.
If you are considering bankruptcy, either personally or for your business, you should consult an experienced bankruptcy attorney. We are here to help.