The CARES Act, recently enacted into federal law in response to the COVID-19 pandemic, made several changes to the Bankruptcy Code that affect people who have filed, or will be filing, bankruptcy. In Part One of this series, we discuss how the CARES Act treats the receipt of a stimulus payment by a debtor (or potential debtor) and whether the receipt of such payment will affect his or her chapter 7 or 13 bankruptcy case.
The legislature made several amendments to the Bankruptcy Code regarding the potential receipt of stimulus payments by persons who have filed (or will file) chapter 7 or 13 bankruptcy cases. Specifically, the CARES Act amends the following relevant Bankruptcy Code Sections:
· 11 U.S.C. § 101(10A): Excludes a debtor’s stimulus funds from the definition of “current monthly income,” thereby effectively excluding the funds from a chapter 7 debtor's means test calculation; and
· 11 U.S.C. § 1325: Excludes a debtor’s stimulus funds from his or her “disposable income” which must be used to fund his or her chapter 13 plan.
However, the legislature failed to exclude a debtor’s stimulus funds from the definition of "property" of a debtor's bankruptcy estate. Accordingly, it is recommended that bankruptcy debtors, especially chapter 7 debtors, seek legal counsel to determine whether any state or federal exemptions statutes may apply to protect his or her stimulus funds from the reach of creditors and/or the chapter 7 trustee.
All of the amendments to the Bankruptcy Code made by the CARES Act include a sunset provision, meaning that the amendments will expire one year from the enactment of the CARES Act. (i.e. on March 27, 2021).
This article is meant for informational purposes only. It does not constitute legal advice and the reading of it does not create an attorney-client relationship between the author and the reader. All readers are encouraged to speak to a licensed bankruptcy attorney in the state they reside in for legal advice specific to his/her unique circumstances.