CARES Act: Bankruptcy Cases and Coronavirus COVID-19

By Ryan C. Wood

The CARES Act does provide some relief or changes for bankruptcy filers and potential bankruptcy filers due to the Coronavirus COVID-19. I will modify this article when official changes to the Bankruptcy Code are published by the authorities that regulate these changes. That said I know the information below will be helpful to provide you with some insight and peace of mind.  Section 1329 of the Bankruptcy Code already provides the terms of your confirmed and approved chapter 13 plan can be changed based upon a change in circumstances.  Depending upon your circumstances that exist already, your confirmed chapter 13 plan, how your potential modification will actually help will vary widely.  Just know there are procedures that exist to help you if you are unfortunately financially negatively affected by the Coronavirus COVID-19.  Now keep reading for information that should apply to you.

You may also watch my YouTube Video about Bankruptcy and Changes From CARES Act Due To The Coronavirus COVID-19

First If You Can Continue Your Chapter 13 Plan Payments Do So

If you are in an active chapter 13 bankruptcy case you are supposed to continue to make your chapter 13 plan payments even with the shelter in place orders and the coronavirus and COVID-19.   If your chapter 13 plan is not confirmed or approved yet you still need to continue to pay the monthly chapter 13 plan payment even though it is not yet confirmed or approved.  If you cannot continue to pay the monthly chapter 13 plan payment read about the options that are available to help.  If and when your chapter 13 plan is amended or modified will be when you can pay the new chapter 13 plan payments each month based upon those changes.  This may not be possible given your current financial situation and of course you must pay for food and other necessary expenses to just live. 

If You Do Not Pay the Chapter 13 Plan Payment

If you just cannot pay the monthly chapter 13 plan payment you are in default as to the confirmed chapter 13 and the case is subject to dismissal. Normally the chapter 13 trustee will file a motion to dismiss the case for nonpayment. Once the motion to dismiss the case is filed you will have time and options to save the case such as modifying the terms of the confirmed plan. Hopefully chapter 13 trustee’s will be more lenient with missed plan payments given the current circumstances and significant financial turmoil outside of everyone’s control. We shall see. 

If Your Chapter 13 Plan is not Yet Confirmed or Approved

You will need to amend your chapter 13 plan based upon your change in financial circumstances due to the Coronavirus COVID-19.  The CARES Act does not provide for an extension of the term of how many years a plan can exist for cases that do not yet have a confirmed approved chapter 13 plan. The plan filed in the chapter 13 case may no longer be feasible given the your change in financial circumstances. You will need to amend the plan or explore other options.     

Chapter 13 Plan Modification Pursuant to Section 1329 of the Bankruptcy Code

If your chapter 13 plan is confirmed or approved Section 1329 of the Bankruptcy Code allows for the modification or change of the terms of your confirmed chapter 13 plan.  The CARES Act provides changes to modification under Section 1329 of the Bankruptcy Code.  It is early so what is provided here may change or be different depending upon the procedures put in place in your jurisdiction.  Normally a chapter 13 plan can only be a maxiumum 60 months or five years.  The CARES provides a confirmed chapter 13 plan may not provide for payments over a period that expires more than 7 years after the time that the first payment under the original confirmed plan was due.  I read this as confirmed chapter 13 plans can now be extended past the 60 month or 5 year limitation that previously existed.  The means that your plan payments can be spread out over an additional 2 years therefore resulting in a reduction of the monthly plan payment that existed before.  This will be applicable to cases filed before, on, or after the date of enactment of the CARES Act.  This is good news and we shall see have this goes in the real world. See the end of this article for the actual language of the CARES Act.

A motion must be filed and a hearing held before the Court and in most jurisdictions a new plan will be proposed based upon your changed circumstances.  An amended Schedule I and J regarding your income and expenses will most likely have to be filed too.  Plan modification is normally an additional cost to pay your bankruptcy attorney for the additional time and money they must expend on your behalf.  You will need to review the rules in your local jurisdiction regarding this and costs will vary.  What relief or changes are available to you will depend upon why you filed the chapter 13 case to begin with.  Was the case filed to pay back missed mortgage payments?  Did you have to file a chapter 13 based upon your income and expenses and not the value of your assets?  Did you file a chapter 13 case to protect assets that could not be exempted or protected in a chapter 7 liquidation case?  Your obligations to creditors based upon the Bankruptcy Code will continue to be the same while your ability to meet those obligations has changed due to the Coronavirus COVID-19.  You must contact your bankruptcy attorney for more information about how your specific change in circumstances will modify your confirmed chapter 13 plan or chapter 13 bankruptcy case.   

Chapter 13 Hardship Discharge

The Bankruptcy Code also provides for an early entry of an order of discharge in your existing chapter 13 case. Depending upon your circumstances you may be eligible to seek this relief. Section of 1328(b) the Bankruptcy Code provides you may request a hardship discharge if: (1) the debtor’s failure to complete plan payments is due to circumstances beyond the debtor’s control and through no fault of the debtor; (2) creditors have received at least as much as they would have received in a chapter 7 liquidation case; and (3) modification of the plan is not possible. Again a motion must be filed with the Court and a hearing held. Other information by declaration will need to be provided evidencing the hardship, how it was outside your control and that modification of the existing chapter 13 plan is not possible. For many chapter 13 cases this will not be possible given the reason the chapter 13 case was filed to begin with such as paying back missed mortgage payments or not dischargeable taxes. Just know this is another potential procedure that currently exists to help you given these challenging times. I will be filing motions for request for entry of a hardship discharge for a few clients as it stands given they have been irreparably financially harmed directly due to the Coronavirus COVID-19 response.

Income Received From Coronavirus COVID-19

The CARES Act also excludes any income derived from Coronavirus COVID relief from your monthly income or income calculation.  Relief will vary widely depending upon your income and circumstances but the idea is these one-time increases or payments should not be included in your income calculation to negatively affect or artificially increase your income given the relief will most likely not continue for the entire life of your bankruptcy case. 

Small Business Reform Act of 2019 Debtor Changes and CARES Act

The debt limitation to be a debtor under the Small Business Reform Act of 2019 have been increased from the original limit of $ The small business chapter 11 debtor new laws just took effect and the CARES Act provides a significant change.  These are new laws for specifically a person engaged in commercial or business activities that has aggregate noncontingent liquidated secured and unsecured debts as of the date of the filing of petition or the date of the order for relief (date case is filed) in an amount not more than $7,500,000 (excluding debts owed to 1 or more affiliates or insiders) not less than 50 percent of which arose from the commercial or business activities of the debtor (bankruptcy filer).

Section 1113 Bankruptcy

(b) Bankruptcy Relief

(b)(1)(C) Confirmation of Plan

A plan confirmed prior to the date of enactment of this subsection, the plan may be modified upon the request of the debtor if – (A) the debtor is experiencing or has experienced a material financial hardship due, directly or indirectly, to the coronavirus disease 2019 (COVID-19) pandemic; and (B) the modification is approved after notice and a hearing (2) a plan modified under paragraph (1) may not provide for payments over a period that expires more than 7 years after the first payment under the original confirmed plan was due.

How is Material Defined or What Is Material?

Section 101 of the Bankruptcy Code does not defined the term material. We will have to look to cases for some guidance. “A fact is material if it bears a relationship to the debtor’s business transactions or estate, or concerns the discovery of assets, business dealings, or the existence and disposition of the debtor’s property.” Retz, 606 F.3d at 1198 (quoting Khalil, 379 B.R. at 173). Roberts v. Erhard (In re Roberts),331 B.R. 876, 882 (9th Cir. BAP 2005) (citing In re Wills, 243 B.R. at 62) Somewhat helpful.

More helpful. “A fact is ‘material’ only if it might affect the outcome of the case, and a dispute is ‘genuine’ only if a reasonable trier of fact could resolve the issue in the non-movant’s favor.” Fresno Motors, LLC, 771 F.3d at 1125 (citing Cty. of Tuolumne v. Sonora Cmty. Hosp., 236 F.3d 1148, 1154 (9th Cir. 2001) and Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986))

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