Due to the COVID-19 pandemic, the federal government passed the “Coronavirus Aid, Relief and Economic Security Act” (aka the “CARES Act”) into law with provisions to provide financially distressed consumers and small businesses greater access to bankruptcy relief.
Key provisions within the CARES Act
• Amending the definition of “income” in the Bankruptcy Code for Chapters 7 and 13 to exclude coronavirus-related payments from the federal government from being treated as “income” for purposes of filing bankruptcy.
• Clarifying that the calculation of disposable income for purposes of confirming a Chapter 13 plan shall not include coronavirus-related payments.
This is a huge departure from what is considered “income” under the bankruptcy code. Generally, when filing for bankruptcy, you are required to list all income you receive from almost all sources. This includes:
- Gross wages, salaries, tips, bonuses, overtime, and commissions. Essentially all income you receive from employment is part of your Combined Monthly Income (CMI). Keep in mind that you must use your gross income (before tax and other deductions) when calculating CMI.
- Net income from business, profession, or farm. If you are self-employed or own a business or farm, your CMI includes your net income (income after deducting business expenses) received from these sources.
- Net rental or other real property income. If you receive rents or have other income from real property, your net income after expenses is included in your CMI calculation.
- Income from interest, dividends, and royalties. Any interest, dividend, or royalty income is part of CMI.
- Pension and retirement income. If you have a pension or receive retirement benefits, you must add them to your CMI calculation.
- Regular contributions or support received from another person for household expenses. This includes income from alimony or child support. In addition, even if your daughter is giving you $300 each month to help out, you must include that contribution in your CMI. However, you don’t have to include any contributions from your spouse if you are filing a joint bankruptcy with him or her.
- Unemployment benefits. If you receive unemployment compensation, it must be included in your CMI. But unemployment benefits received under the Social Security Act are not part of your CMI calculation.
- Income from all other sources. Any income you receive from other sources such as state disability payments or annuities.
Other key provisions of the CARES ACT
- Permitting individuals and families currently in Chapter 13 bankruptcy to seek payment plan modifications if they are experiencing a material financial hardship due to COVID-19, including extending their payments for up to seven years (7) and/or total plan term of 84 months, after their initial plan payment was due. Normally, chapter 13 plans cannot exceed 60 months.
Legal Disclosure: The information contained herein, is not intended to – and does not – create an attorney-client relationship. This article is not intended to provide legal advice, and readers should refrain from acting on information contained herein without seeking specific legal advice from individually qualified counsel.