Changes in Consumer Bankruptcy Since COVID-19 Struck
The coronavirus pandemic has severely impacted the U.S. economy, leading many Americans to grapple with job losses, furloughs and other financial setbacks. While there has not yet been a surge in consumer bankruptcy filings in 2020 — most likely because they have been offset by stimulus payments and other government assistance programs — changes to the federal laws have been enacted to make bankruptcy a more effective remedy for people in economic distress. Some of the changes were implemented by the Coronavirus Aid, Relief and Economic Security (CARES) Act.
The following is a summary of some of the ways COVID-19 has affected consumer bankruptcy.
- Pandemic relief payments are not considered income — If you received a stimulus payment from the federal government, this money is excluded from your monthly income when you file for Chapter 7 bankruptcy and won’t count as disposable income if you file for Chapter 13.
- Longer repayment periods for Chapter 13 — If you filed for Chapter 13 bankruptcy protection and your repayment plan was confirmed prior to March 27, 2020, the court can extend the time period for repayment to seven years (up from the usual limit of five years) if you can show material financial hardship caused by COVID-19. This results in lower monthly payments under the extended plan.
- Payment deferments — In Chapter 13 bankruptcies, creditors and trustees can agree to payment deferments due to COVID-19 as long as the court approves the modifications. We have already done this for many of our Chapter 13 clients.
- Payment moratorium — A bankruptcy court can allow a moratorium on Chapter 13 plan payments, for up to 90 days, in the case of a debtor’s job loss, disability or significant unexpected expense. In some cases, Chapter 13 trustees will agree to second moratoriums as well as extended time periods even in the absence of hardship per the CARES Act.
- Mortgage payment forbearance — The CARES Act gives borrowers the option to ask for a forbearance if their mortgage is backed by the federal government. The forbearance can last up to 360 days if borrowers can prove they are unable to make payments due to COVID-19.
- Changes in signature requirement — In some cases, debtors might be permitted to review their bankruptcy paperwork virtually rather than sign in person.
- Virtual meetings — COVID-19 has changed, at least temporarily, the way people meet with their attorneys and creditors during the bankruptcy process. All of our meetings of creditors and motions in the Central District of California are now being done by phone or by Zoom video conference rather than meeting in person. We are still in the office meeting in person with all clients and potential new clients that are comfortable meeting in person with us.
At the Law Offices of Michael Jay Berger, we assist clients with all aspects of bankruptcy. If you are considering filing a bankruptcy and would like to discuss the specific facts of your case, contact us online to schedule a consultation or give us a call at 310-271-6223.