Signed into law on March 27th, the CARES Act is a response to the current and future impacts COVID-19 will have on the economy. Companies throughout the nation have laid off workers or gone out of business, and the stock market has already begun to plummet. Fortunately, the CARES Act provides several powerful provisions, ranging from immediate individual relief (e.g. stimulus checks and grants) to forgivable loans.
One major effect of the CARES Act involves several adjustments to the Bankruptcy Code. These adjustments will only last for one year, but they may help countless individuals and businesses who previously could not qualify for bankruptcy.
The three major bankruptcy provisions are as follows:
- Federal COVID-19 related payments will not be viewed as income or disposable income in Chapter 7 or 13 bankruptcy. To qualify for Chapter 7, a person must make less than their state’s median income. Excluding emergency grants or checks from a person’s income, therefore, will help them qualify. Similarly, in Chapter 13 cases, the filer must apply all disposable income toward their repayment plan. The exclusion provided by the CARES Act allows filers to keep their federal payments instead of having to apply it to their debt.
- Individuals and families filing Chapter 13 bankruptcy can seek to modify their repayment plans due to COVID-19-related adversity. Chapter 13 bankruptcy allows a debtor to reorganize their debt into a reasonable 3-5-year payment plan, which the court approves before the debtor begins making payments. If the pandemic causes the Chapter 13 filer to suffer financial hardship, they can request to modify their plan by extending the deadline and, therefore, lowering their monthly payments.
- The debt threshold for Subchapter V of Chapter 11 bankruptcy is increased from $2,725,625 to $7,500,000. Established by the Small Business Reorganization Act of 2019, Subchapter V is a new form of bankruptcy exclusively available to small business owners. Prospective filers could only qualify as small business owners, however, if they owed no more than $2,725,625. By nearly tripling this threshold, the CARES Act allows more businesses to take advantage of Chapter 11’s benefits and avoid the alternative of Chapter 7 “liquidation” bankruptcy.
Many of the benefits in the CARES Act are short-term solutions to long-term economic hardship. Bankruptcy, however, serves as a fresh financial start, allowing individuals and businesses to free themselves from debt and build foundations for a better future. COVID-19 is an unprecedented crisis, and Americans may need to implement powerful solutions like bankruptcy to financially survive.
Personalized Guidance from Hensel Law Office, PLLC
Would you like to take advantage of the CARES Act, but you aren’t sure where to start? Our attorney at Hensel Law Office, PLLC is fully prepared to help you understand the options you have at your disposal. If necessary, we can help you file bankruptcy in a way that protects what matters most while freeing you from crippling debt. We founded our firm to assist individuals and businesses through severe financial adversity, and the COVID-19 crisis has only strengthened our resolve to serve our clients and community.
To schedule your complimentary consultation, call (888) 258-0651 or fill out our online contact form today. We look forward to standing by your side during this crisis.