On March 25, 2020, Senate passed sweeping federal relief legislation called the “CARES Act” in response to the coronavirus crisis. The CARES Act includes an amendment to chapter 13 the Bankruptcy Code that may provide benefit to households that have been financially impacted by this pandemic. This legislation applies to both new cases that are not yet filed as well as chapter 13 cases that have already been filed.
If you are currently in chapter 13 and are experiencing a material financial hardship due to the coronavirus pandemic, the amendment explicitly permits individuals and families to propose chapter 13 plan modifications that either reduce their monthly plan payment and/or extend their chapter 13 plan to a total duration of up to 7 years.
Modify the Chapter 13 Plan to Reduce your Monthly Payment: If you have suffered, or soon will suffer, a material financial hardship due to the pandemic, you may wish to consult your attorney about modifying your chapter 13 plan to reduce the monthly payment until such time that your income recovers. This option may benefit persons and households who have suffered a loss of employment, reduction or loss of income due to layoffs, reduced hours or otherwise have financial hardship caused by the need to take care of children or family members.
Extend the Chapter 13 Plan to Seven Years: Specifically, the CARES Act allows chapter 13 debtors to propose a modified chapter 13 plan that extends the duration of their chapter 13 plan to a total of no more than seven years, as opposed to typical five years in most chapter 13 cases. For existing chapter 13 cases, extending a plan to up to seven years requires a showing you are experiencing or have experienced a “material financial hardship due, directly or indirectly, to the coronavirus disease 2019 (COVID–19) pandemic”. In some cases, a 7-year chapter 13 plan means that mortgage arrears, priority taxes and other priority and secured debts may be repaid over a 7 years with lower monthly plan payments as opposed to higher monthly plan payments over 5 years, particularly if your household income has been impacted by the pandemic.
Examples of persons who may be benefitted by filing a modified chapter 13 plan under the CARES Act:
- You or another primary income earner in your household have reduced or lost income due to layoffs caused by the pandemic.
- You or another primary income earner in your household have had to reduce your hours due to illness or need to take care of children or family members as a consequences of the pandemic including school closures.
- Your current chapter 13 plan was filed primarily to repay taxes, mortgage and/or auto loan arrears, taxes and other priority debts. The new amendment provides the option to extend your plan for up to 2 years beyond the original plan length (for a total new plan length of no more than 7 years) to allow more time to pay these important debts.
This new legislation will apply for those who were laid off from work or otherwise suffered a loss of income due to the pandemic, or for whom their household is financially impacted due to the virus. Please contact my office if you believe the pandemic has caused a loss of income, or soon will cause you to lose income and therefore jeopardize your ability to continue your chapter 13 plan payments as currently proposed.
This new legislation is unlikely to benefit current or prospective chapter 13 cases for persons who are not impacted by the pandemic, for those whose income is not impacted and are currently in chapter 13 plans where the general unsecured creditors receive a significant repayment on debt, for those whose income is not impacted and who do not otherwise have mortgage or auto loan arrears, taxes or other priority debts to be repaid in the plan. If in doubt as to whether the CARES Act may benefit your chapter 13 case, you should contact your chapter 13 attorney.
NOTE: The bankruptcy provisions of the CARES Act listed above sunset within a year of the legislation being enacted.
Contact Lynn Wartchow for a consultation on how the CARES Act may benefit your chapter 13 case.