How the CARES Act Helps Debtors in Chapter 13 Bankruptcy
The CARES Act (Coronavirus Aid, Relief, Economic Security Act) provides some assistance to consumer and bankruptcy debtors. In addition to the one-time stimulus package sent out over the last month, the Act also provides debtors in bankruptcy additional relief.
The CARES Act allows chapter 13 debtors to extend the length of a confirmed plan to 84 months.The limit on chapter 13 cases before the Cares Act was 60 months. The extension of confirmed plans to 84 months will provide relief to debtors suffering financially due to the COVID-19 public health crisis. Essentially, debtors may stop their chapter 13 plan payments for a period of time and propose to resume payments at a later date. Before the Cares Act, debtors would have to make up those missed payments within the 60-month time limit. The extension of 24 more months means that debtors may be able to keep their same plan payment amount when they resume their plan payments. The requirement that a plan be confirmed, however, is puzzling to attorneys since a vast number of chapter 13 plans pending during the COVID-19 crisis were not yet confirmed.
Confirmation occurs when the Trustee and creditors have accepted the Plan proposed by the debtor, and the Bankruptcy Judge signs an Order Confirming Chapter 13 Plan. Confirmation may be delayed for several reasons, many of which are not on the fault of the debtor. For instance, a plan cannot be confirmed until a meeting of creditors required under section 341 of the Bankruptcy Code is held and concluded. It takes anywhere between four and six weeks from the date of filing for this meeting to be held. Further, 21 days must run (the time period allowed for parties to object) after a Plan is amended before it can be confirmed. Amended plans are common as an individual’s circumstances may be changing during the bankruptcy process. For example, a debtor may be facing a job loss or an increase in medical expenses, necessitating the Plan to be amended which starts over the 21-day required time period in which a creditor or trustee may object.
Who Qualifies to Extend the Time in a Chapter 13 under the CARES Act?The CARES Act states that individuals suffering a “material financial hardship” will be eligible to extend the length of their chapter 13 plans. It remains unclear, however, what will be considered a “material financial hardship.” Given the severity of this global health crisis and the extraordinary circumstances surrounding our nation with shelter-in place orders, closing of restaurants, and rising unemployment claims, a “material financial hardship” should not be too hard to prove to a Court.