Changes to Chapter 13 Plans due to COVD-19 in the CARES Act: You may be able to modify your existing chapter 13 plan to reduce your monthly plan payments and/or extend your chapter 13 plan to a total plan length of up to 7 years.

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.

Can I still file bankruptcy during COVID-19? What is different about bankruptcy during this National Emergency?

For now, the Minnesota bankruptcy court is still accepting new consumer and business bankruptcy filings for all chapters of bankruptcy, continuing the availability for critical bankruptcy relief for persons otherwise in the process of foreclosure, wage garnishment, debt collection and other unknowns. The court systems are essential functions of our country, core to constitutional functions and access to justice. For this reason, it’s unlikely that bankruptcy filings will be suspended or cut off during the national emergency. However given that attorneys are also dealing with the same additional pressures of taking care of their own families and after working with more limited resources than normal, you may expect longer response times.

Yes, you can still file chapter 7 and chapter 13 bankruptcy during the COVID-19 outbreak, but the process will be different.

If you have not yet consulted and retained a bankruptcy attorney, the first hurdle you face may be consulting and establishing the necessary information for your attorney to file your bankruptcy case. If you have a computer or device with camera function, most attorneys are switching to video or telephone conferences instead of in-person consultations. Wartchow Law offices utilizes the application Zoom for video conferencing and document review, and Zoom does not require that clients create an account or login, although a download of the software may be needed. Next you will need to provide your attorney with a significant amount of information and documentation, posing another potential problem for those that do not have access to a scanner or fax machine from home.

Signatures also pose an issue for which the Minnesota bankruptcy court has already addressed by temporarily suspending the requirement for original “wet” signatures on bankruptcy documents, and instead allowing attorneys to collect their clients’ authorized e-signatures. This allows debtors to sign and file their bankruptcy documents while reducing the need for physical contact between attorneys and clients.

Also for now, the Minnesota bankruptcy court and panel trustees have suspended in-person court hearings for lift stay motions, chapter 13 plan confirmations, and Meetings of Creditors—all of which typically take place in person at the courthouse or other designated official location. While the process is still in flux for how to hold these required appearances without compromising public health, it is expected that judges and trustees will soon hold Meetings of Creditors and other required hearings telephonically and/or by video conference. For pending bankruptcy cases that have already been filed, this means that Meetings of Creditors that have not yet been held are currently being suspended and indefinitely continued, for now at least. However the suspension and continuance of hearings does not mean that the protection of the automatic stay or other bankruptcy relief is not available. Creditors may also still file motions for lift stay and adversary proceedings, and bankruptcy trustees are still working to administer bankruptcy estates during this national emergency.

In sum, you can still file bankruptcy and the need to file may be greater than ever. Potential debtors are encouraged to check with their state authorities to see if other forms of non-bankruptcy relief may be available to them, including lessening of restrictions and wait periods on unemployment benefits, availability of emergency funds, restrictions on eviction, foreclosure and other debt collection, as well as check with their creditors to see what forbearance options may be available to them regarding mortgage, auto loan and credit card payments.

Every bankruptcy court is separately administered and what one bankruptcy court or bankruptcy trustee is doing during COVID-19 may not be the case for all bankruptcy courts or trustees. It’s always best to check with a local bankruptcy attorney or bankruptcy court website for your district to see what the latest is as the courts, trustees, bankruptcy attorneys and other practitioners change the way that bankruptcy cases are administered.

Located in Edina, Lynn Wartchow represents all chapters of bankruptcy in Minneapolis, St. Paul, Ramsey and Hennepin County, and throughout Minnesota.