How Will COVID Relief Act Bankruptcy Changes Help Individuals File For Bankruptcy?
As part of the CARES act signed in March 2021 of this year, the government has provided more relief for people filing for bankruptcy. Some of those changes related to business bankruptcy and Chapter 11, specifically, changes to commercial relations between bankruptcy tenants and their landlords.
But in March 2021, many additional changes were made to bankruptcy laws that will affect everyday people filing for Chapter 7 or Chapter 13 bankruptcy, as well as being of help to smaller businesses seeking to file for bankruptcy.
More Small Businesses Can File
One major change that will help small businesses is expansion of the businesses that are eligible to file for Chapter 11 bankruptcy under the new Small Business Reorganization Act (SBRA). The SBRA has a number of shortcuts to make Chapter 11 quicker, cheaper, and more streamlined, for smaller businesses.
Normally, the SBRA has a debt limit of about $2.7 million. If a business has more debt than that, it can’t qualify for Chapter 11 under the SBRA, and would have to file a traditional bankruptcy, just like huge Fortune 500 companies would do.
But the March 2021 CARES act now allows small businesses to take advantage of the act if they have up to $7,500,000 in debt. This extended debt limit will apply to all cases filed before March 27, 2022.
Relief Payments Not Counted
Many Americans received the benefit of various payments made by the government as forms of relief while the pandemic was at its worst. For some debtors, that extra income could have meant that they earned too much money to qualify for Chapter 7 bankruptcy under the means test.
But the CARES Act specifically excludes any CARES money or stimulus money, from being counted as income. This should make it easier for Chapter 7 filers to pass the means test, and qualify for Chapter 7 bankruptcy.
The same is true for Chapter 13 bankruptcy, where payments to creditors are calculated based on a debtor’s disposable income. Of course, stimulus money may have made it seem like a debtor has more disposable income than he or she actually has, and thus, could raise payments to creditors higher than the payments should be. But the CARES act specifically excludes stimulus money from being counted as disposable income for the purpose of Chapter 13 bankruptcy.
Modifying Chapter 13 Plans
Getting modifications of Chapter 13 plans can be difficult in normal circumstances. But certainly, the economics of the pandemic have made what once were affordable Chapter 13 payments, into unaffordable payments.
The new law specifically allows debtors who can’t afford to keep paying their Chapter 13 payments, to get a modification of their payment, if they are experiencing a hardship that is related to the pandemic. They also can extend their payments for as many as seven (7) years past the deadline, when their normal payment period should have ended.