The CARES Act and What it Means for Chapter 13

We’re still on the road to an unknown destination with COVID19, and there are about to be a few sights along the way. The CARES Act was passed and signed into law at a relatively fast pace for Congress, and while the haste was understandable, it’s resulted in some unintended consequences that are only now rippling out past the Beltway. Some of those changes apply to people who have active Chapter 13 bankruptcies or those who are considering filing soon. 

CARES Act Memo to Trustees

Bankruptcy cases are heard in federal courts but are governed by the states – which have many and varied laws regarding bankruptcy within their borders. Florida is no different. However, the full force of federal law with regard to certain provisions is nothing to disregard. In the CARES Act, the rebates provided by the government – $1200 per adult and $500 per child – are not considered income or as a part of the bankruptcy estate by the court. Therefore, that money is yours to keep.

Provisions for Chapter 13

The CARES Act also affects Chapter 13 cases in progress by offering debtors a chance to extend payments during a time of financial hardship. When you’ve entered into an agreement with the court to pay X amount for three to five years, you can now apply for a three- to a seven-year extension that may end up reducing your payments. Again, this is not automatic, you must apply for it and be prepared to prove financial hardship in order to gain more time to recover and catch up with your agreed-upon payments. This provision is also limited with a sunset provision taking this extension off the table on March 27, 2021. 

If You are in Chapter 13 Bankruptcy Right Now

• Consider filing for an extension so that you can make your payments.
• Be prepared to prove loss of income and financial hardship.
• Don’t worry about your stimulus check or those of your family – that money is yours.
• If you have been threatened by creditors or scammers that they can garnish your CARES Act check, they absolutely can’t unless it’s for back child or spousal support.

If You are Considering Chapter 13 Bankruptcy Right Now

• Look at your debts versus your current income and ask if your income is likely to return to previous levels that would allow you to pay your debts.
• If your income is at some point going to return to previous levels, will it still be eaten up by servicing your debts?
• If your income does not return to previous levels, how will you prioritize your spending and will it cover the basic necessities of life for you and your family?

Many people only consider Chapter 13 bankruptcy when they are teetering on the edge. It’s time with all this uncertainty over reopening and whether or not businesses will survive to do more than stick a pin in it. By filing now, before things get desperate, you gain the advantage of having the same extension automatically apply to your bankruptcy. The clock starts ticking when you file, and that extra time could make payments easier to meet and have the additional benefit of the automatic stay to halt all current collection actions.

Clarifying “Material Financial Hardship”

It’s not enough to want to reduce your payments, and having a CARES Act extension approved is not going to happen automatically. You must be able to prove a material financial hardship in order to qualify for the extension that will give you three to seven years to meet your obligation and discharge your bankruptcy. In short, unless the preponderance of evidence shows actual hardship, it’s not going to fly. Here’s the plain-language criteria.

• Prove with documentation from credible sources the costs for basic living expenses for you and your family members and dependents against the income available from any source and show your income to have little to no give to meet the imposition of your current payment.
• How and why your income was impacted.

The court will then consider the claim by measuring the expenses versus income against a national standard and then either agree to or deny the extension. If you can prove that an expense that exceeds the national standard is reasonable and unavoidable, you may still be granted the extension. If you are not genuinely experiencing a hardship, the court will take a dim view of your attempt to obtain an extension. Never play chicken with a federal judge. 

Where Do You See Yourself Five Years from Now?

It’s a hard question to answer at the best of times, and these are not even close to the best of times. The uncertainty surrounding reopening states and businesses, the possibilities of a second wave, the utter beclownment of the Florida EDD (now with data breach!), and myriad other factors are fogging the field of vision. However, if you can think about having a financial future aside from making minimum payments and living one paycheck away from disaster, calling Van Horn Law Group is making the right call. We can help you get to a better place where you’re free of debt, financially literate, and able to sleep at night. We know how to help.

At Van Horn Law Group, We Take Pride in Caring

In 2009, near the down-and-dirty bottom of the Recession, Van Horn Law Group began filing bankruptcies, negotiating debt, helping people fight foreclosures, and protecting the rights of people who felt that the system was stacked against them. Now, eleven years later we’re looking at another historic financial crisis and gearing up to make sure that your rights are protected. Our offices in Fort Lauderdale, West Palm Beach, and Miami Lakes are open, and we are evolving our practices to keep our staff and clients safe from COVID19. Call or contact us through our website, or make an appointment with Chad via Calendly. We are ready to help you through these hard times and into a better financial future. We can help!