The Coronavirus Aid, Relief, and Economic Security (CARES) Act made specific changes to the bankruptcy laws, protecting those already involved in the bankruptcy procedure with an automatic stay, in cases of court closings; and extending deadlines for those filing for bankruptcy during the emergency. However, these modifications are so far temporary, and they will expire on March 27, 2021, absent other action by Congress to extend them. In addition, many of the eviction and mortgage protections expired on August 1, 2020, and no extensions have been provided by Congress. While the states have individually attempted to provide some help, the best an individual can do is weigh their options for bankruptcy.
Chapter 7 and Modifications
A Chapter 7 bankruptcy "clears" or discharges all debts so far as possible for the debtor. Under a Chapter 7, an automatic stay is issued against the creditors, suspending collection of those debts. The CARES Act does not substantially change any of these rights. However, under the modifications, some bankruptcy courts have waived the "wet" or original signature requirement from the creditor, and have waived the Section 341 Meeting of Creditors, allowing those meetings to be conducted via telephonic or other remote methods. Chapter 7 modifications are not substantial, except that they will be expiring as of March 27, 2021.
Chapter 13 and Modifications
Because the goal of a Chapter 13 is to pay down or pay off some debts at a reduced rate, or over a period of time, the modifications under CARES have extended the potential payoff to seven years. This requires notice and hearing, and a showing of a financial hardship directly related to the COVID-19 emergency as opposed to the original financial hardship.
Although this seems like a boon, the uncertain nature of the emergency means that debtors need to carefully consider their economic condition. Businesses are still being shut down, and income is not guaranteed. A payment plan that seems reasonable now may be unviable in six months, and a modification of the plan may not be possible.
A System in Flux
The ongoing nature of the COVID-19 crisis means that banks and courts are moving ahead of the legislature, and working with consumers to avoid the predicted flood of bankruptcies and evictions. As of May 2020, bankruptcies had actually declined as more homeowners were entering mortgage forbearance plans and utilizing other means to avoid filing for bankruptcy.
In other places, state and local governments are providing emergency funds, such as Pennsylvania's 30 Day Fund, a forgivable loan program, and providing legal assistance for low-income renters, such as California's Shriver Project, which helps poor renters vacate property without judgments, avoiding the hit to their credit ratings.
These measures are all unique to each location, and require the debtor to reach out to their creditors, landlords, and bankers and try to work with them to arrange payments and equitable trades.
Federal Assistance and the 2020 Election
As of August 13, 2020, Congress is in recess until September, and without voting on a new relief package for the American public. President Trump has signed an Executive Order extending existing relief, including unemployment benefits, but additional assistance is likely to be deferred now until after the November election. All the more reason for consumers to work closely with their creditors and arrange payments before declaring bankruptcy.
Consulting an Attorney
For these reasons, and especially the March 2021 deadline, consulting with a bankruptcy attorney is essential before deciding which of these plans is the right one. When negotiating a mortgage forbearance, or determining what income is and is not subject to bankruptcy repayment, knowledge is always essential. A bankruptcy is meant to be helpful in these uncertain times. Contact our offices for compassionate, knowledgeable help to people who cannot pay their debts in these troubled financial times.