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Learn How the CARES Act has Temporarily Changed the Bankruptcy Code

How has cares-act-affected bankruptcy

Amidst the COVID-19 pandemic, there have been some temporary changes to certain bankruptcy rules under the Federal Coronavirus Aid, Relief, and Economic Security (CARES) Act. The CARES Act aims to provide emergency assistance and health care for individuals, families, and businesses that are being affected by the 2020 COVID-19 pandemic. The CARES Act also modified certain provisions of the Bankruptcy Code which will last for one year, expiring on March 27th, 2021.

CARES Act changes to Chapter 7 and Chapter 13

Under the CARES Act, the government has been providing stimulus checks and other payments that are meant to provide some financial assistance during the crisis. These payments will not count as monthly income for debtors that are considering filing under Chapter 7. They also will not count as disposable income for those seeking to file under Chapter 13. In other words, stimulus checks will not affect your eligibility to file under either chapter or any required payments to unsecured creditors in a Chapter 13 Bankruptcy. 

This Act also allows Chapter 13 debtors the chance to extend the length of the Bankruptcy Plan from five to seven years. In many cases, this would result in a longer plan term but lesser overall monthly payments.  If you have a Chapter 13 plan that has already been confirmed, you can modify the plan to increase the term of the plan and lower the monthly payment.  If you have not yet filed a case and you do so before March 27, 2021, a plan can be proposed with a maximum plan term of 7 years rather than the normal maximum plan term of 5 years. All changes under the CARES Act are applicable until March 27, 2021

Other notable recent changes to the Bankruptcy Code

Prior to the CARES Act, Congress was already working on significant changes to the bankruptcy code.  One of the most remarkable recent modifications to the bankruptcy code was the Small Business Reorganization ACT (SBRA) which became effective in February 2020. This created a new subchapter under Chapter 11 that is also known as Subchapter 5. This provides businesses with a certain amount of debt, faster and less expensive options for reorganization. If your business has inquired about Chapter 11 Bankruptcy in the past and the option was not financially viable, please reach out to us to see how the recent changes could make a Chapter 11 Bankruptcy a good fit for the business.

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Our firm is open and available to help you. Due to COVID-19, Acker Warren, P.C. will conduct your consultation remotely, through a video-conference or by phone. Don’t hesitate to contact us if you have any questions.

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