The COVID-19 pandemic has affected many people’s lives, including loss of jobs and closure of businesses. It has, without a doubt, greatly affected the economy. In line with this, many individuals and businesses are declaring bankruptcy.
Thus, the U.S. government founded the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The CARES Act was enacted to help alleviate the economic effects of the pandemic and relieve the bankruptcy process many go through today.
What is the Coronavirus Aid, Relief, and Economic Security (CARES) Act?
The CARES Act provides assistance for American families and workers, small businesses, and preserves the jobs of people working in American industries. The law was passed March 27, 2020. It has a budget of $2 trillion as economic relief to help those affected by the pandemic.
In San Diego, for example, the San Diego Council already looked into distributing CARES Act funds to some of its local cities not qualified for federal funds. The County also approved $12.8 Million to fund small businesses. In the education sector, colleges were also offering Emergency Grants to their students.
This Act made several changes to Chapter 11 of the Bankruptcy Code for the reorganization of small business debtors. CARES Act broadens the requirements for small businesses filing under the Small Business Reorganization Act (SBRA).
For an individual to qualify as a debtor under SBRA, the debtor’s total debts should not exceed $2,725,625. Under the CARES Act, the limit for the total debt was temporarily extended to $7,500,000. By raising the debt limit for a debtor as a qualification for SBRA, the Act makes the bankruptcy reorganization a practicable alternative for small businesses.
It also made a short-term modification for Chapters 7 and 13 of the Bankruptcy Code, providing relief for individual debtors. Said changes would expire on March 27, 2021, if not extended.
CARES Act also suspends the collection of student loan payments extended by the federal government until September 30, 2020. The suspension also includes interest. However, this suspension does not apply to student loans not owned by the Department of Education.
Changes in Chapter 7 of the Bankruptcy Code
Chapter 7 of the Bankruptcy Code controls the process of liquidation of assets. Under this Code, the “current monthly income” is the average monthly income received within six months before the bankruptcy case. The current monthly income includes the regular contributions to the household expenses of non-debtors and the income of the debtor’s spouse if it is a joint petition.
In the CARES Act, the definition of “current monthly income” was modified. Those who are navigating a bankruptcy case or paying into a bankruptcy case are required to report their income. This income will determine their monthly payments. However, the emergency income from the federal government as a relief for the pandemic will not be counted as income concerning the current monthly income.
Changes in Chapter 13 of the Bankruptcy Code
Chapter 13 of the Bankruptcy Code governs the adjustment of debts of a person with a regular income. This chapter is also called a wage earner plan. The debtor is allowed to develop a repayment plan to pay in installments for 3 to 5 years. This method allows the debtor to retain ownership of their assets, unlike in Chapter 7.
In Chapter 13, “disposable income” is the income less than the necessary amount needed for the maintenance of support of the debtor or his dependents.
In the CARES Act, the definition of “disposable income” was also modified. The disposable income will determine whether you are qualified for a repayment plan under Chapter 13. This income determines how much you will pay monthly. However, the emergency income from the federal government as a relief for the pandemic will not be counted as income concerning disposable income.
Those with an approved plan may amend their plans by alleging a material financial hurdle due to the pandemic, after due notice and hearing. Also, payments may be extended up to seven years, instead of the usual five years.
How Defendant Bankruptcy Affects your Personal Injury Claim
One of the many impacts of COVID-19 is the increase in bankruptcy cases. This increase affects not only creditors for unpaid debts but also claims for personal injury cases. There are many things to consider when a personal injury case is pending and the claimant files bankruptcy.
Your personal injury lawyer should be immediately informed of the bankruptcy because this will significantly impact your case for personal injury. Those filing bankruptcy must disclose the personal injury claim in the bankruptcy filing. Failure to disclose such facts may constitute bankruptcy fraud, or at the least, cause something called “judicial estoppel” resulting in the claim being denied because it was not disclosed in the bankruptcy schedules.
Be aware that states have different laws regarding bankruptcy and personal injury compensation. In California, personal injury claims for bodily injury are totally exempt (protected). In New York, there is a personal injury compensation exemption, but only up to $8,275. In South Carolina, those claims are fully exempt under SC Code 15-41-30(A)(12)(b). To fully understand these protections, consult a bankruptcy lawyer in your state.
The pandemic has impacted the physical and economic state of every person in the world. Many businesses are closing, and people are losing their jobs, making it harder to pay their debts. Thus, it is essential to fully understand the temporary modifications by the CARES Act to know how much should be counted as current monthly income and disposable income. I hope this article has helped with that understanding.
Thank you to Kevin Moore for this blog post. Kevin Moore is a freelance writer who writes mainly about finance and the law. Aside from finance and law, he also writes about fitness and health. If he is not writing, he can be found playing with his pet dog, Jaxx. He was accepted by New York University School of Law and is scheduled to begin classes in the fall of 2020 (fingers crossed that COVID-19 won’t change that!)