How does the CARES Act impact bankruptcy?

Congress recently passed the CARES (Coronavirus Aid, Relief, and Economic Security) Act, which provides economic relief to those individuals and companies impacted by the Covid-19 pandemic.  Importantly, Congress made several key changes to the Bankruptcy Code that will impact current cases and future bankruptcy filings.

First, the CARES Act provides that any stimulus funds received by individuals will not be counted as “disposable income” for purposes of the “means test” or computing a chapter 13 plan payment.   The “means test” is the income-based test that determines whether a person qualifies to file a chapter 7 case or is required to do a chapter 13 payment plan.   Thus, Congress has ensured that the economic relief provided to families will not have the unintended consequence of forcing a family into a chapter 13 payment plan or increasing a plan payment for individuals that choose to pursue that type of bankruptcy.

Second, the CARES Act increases the debt limits for “small business debtors” provisions of Chapter 11 from $2,725,625.00  to $7,500,000.00.  That means that small businesses can reorganize under the simpler provisions applicable only to small business debtors.  As a practical matter, that means less administrative expenses and a faster turn-around for exiting the bankruptcy process.

Last, the CARES Act allows persons in a current chapter 13 payment plan to seek a “moratorium” — or break — in plan payments for a period of time and extend future payments past the usual limit of 5 years to 7 years.

Importantly, these provisions have a sunset clause, so the relief provided only lasts for the next year.  If you have questions as to whether the CARES Act provides a new avenue for bankruptcy relief for you or your business, or have questions on the impact on your current case, please contact attorney Aubrey L. Thomas to schedule a free bankruptcy consultation at 928-233-6800.

*Disclaimer: The information contained in this article is for informational purposes only and is not legal advice. Legal advice should take into account the specific facts of your situation.  You should seek professional legal counsel before acting upon any of the information contained in this article.