In March of 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was passed, with a historic $2.2 trillion of economic stimulus aide, to try to offset the social and economic damage inflicted by COVID-19.
Along with so many other changes for most of us in recent months, we see that bankruptcy legislation has changed a little, too. What many don’t realize is that the CARES Act temporarily changed federal bankruptcy law. This includes some of the procedural guidelines set forth by Chapter 5 but also on filing allowances for some of the most common types of bankruptcy, like Chapter 7 or Chapter 13.
What Are The Major Differences Between Chapter 7 and Chapter 13 Bankruptcy?
Chapter 7 bankruptcy frequently applies to eliminating any unsecured debt, like credit card or medical debt. Essentially, it wipes the debt slate clean. It may also involve the liquidation of some of the debtor’s assets to go towards debt repayment. Note, Chapter 7 does not cover all varieties of debt, so it may not be suitable for everyone. Student loans, for example, cannot be eliminated with this type of bankruptcy.
Chapter 13 bankruptcy allows debtors to restructure their debt by making significantly lowered payments for the duration of 3-5 years. It’s not a complete debt elimination, but the reduction in debt allows many to get back on their feet while fulfilling at least some part of their debt obligation.
Important to both of these kinds of bankruptcies are “monthly income” and the amount of “disposable income” one has on hand. For many people living through the Coronavirus pandemic, those figures may have changed drastically in the last few months. And, while many may not have previously passed the Means Test in qualifying for bankruptcy, they may now.
Here are some facts you need to know, whether you have already filed for bankruptcy or are considering filing for bankruptcy in the near future:
- Payments made under federal law to individuals related to the COVID-19 pandemic do not count in Chapter 7 or Chapter 13 bankruptcy filing as “current monthly income” and do not have to be reported as such.
- Any payments made to individuals relating to the COVID-19 pandemic under federal law do not count in bankruptcy filing as “disposable income” and therefore cannot be included in the debt repayment plan for Chapter 13 bankruptcies. This means that your repayments won’t go up like they would otherwise.
- Past filers of Chapter 13 can apply for a modified repayment plan based on any (direct or indirect) hardships experienced due to COVID-19. Your monthly payments could even be greatly reduced by this aspect of the CARES Act.
- Chapter 13 debtors may also qualify for an extended repayment plan of up to seven years if qualifying under the economic hardship resulting from COVID-19.
Figuring out whether you qualify for bankruptcy or may be eligible for a modified bankruptcy plan is best to ascertain with the help of a qualified bankruptcy attorney to walk you through the process. At the Law Offices of Bill F. Payne, we can guarantee up-to-date legal information and advice in an ever-changing world.
Contact us today to set up your free initial consultation.