The CARES Act is federal legislation that was adopted after the pandemic to help our country and people survive the pandemic created unemployment, businesses losses and financial hardship.
It provided for the much-needed stimulus package, the PPP loans for businesses to protect wages, and pandemic unemployment benefits for those who lost their jobs due to COVID-related circumstances, and even provided pandemic unemployment benefits for the self-employed. It’s a massive financial lifeline provided by the government.
The Consolidated Appropriations Act (CAA) supplements the CARES Act by modifying the bankruptcy code, albeit temporarily, in certain parts to help debtors who are negatively impacted by COVID. These temporary amendments sunset at the end of this year but have been extended to March of 2022. What are the temporary amendments that benefit debtors?
As far as the consumer debtor is concerned, there are three amendments that are interesting and have direct benefits for individual debtors:
1. Government assistance related to COVID is excluded from current monthly income calculation and property of the estate.
The CARES Act amended the bankruptcy code’s definition of current monthly income to exclude “payments made under Federal law relating to the national emergency declared by the President under the National Emergencies Act with respect to the coronavirus disease 2019 (COVID-19).”
This means that if you get, for example, pandemic unemployment benefits of $2,000 monthly, that amount is excluded from the computation “how much debtor’s gross and net income are on Schedule I and the Means Test.”
The fact that this benefit is excluded can mean the difference between being eligible for Chapter 7 or Chapter 13, and if for Chapter 13, it means being able to qualify for a lower plan payment.
It’s significant because the debtor may have say $1,000 of monthly disposable income which under ordinary times would prevent him from being eligible for Chapter 7 relief and shift him to Chapter 13 where he needs to pay a portion of his debt, if the disposable income of $1,000 was created by inflow of pandemic unemployment benefits.
On the other hand, if during normal times Chapter 13 debtor would be required to pay $1200 of plan payment, under these circumstances, he would only be required to pay $200 of plan payment monthly instead of $1,200.
2. Pre-COVID chapter 13 plans can be modified or extended.
Under normal times, a Chapter 13 plan cannot provide more than 60 months of payment. The CARES Act further amended the Bankruptcy Code to allow pre-COVID Chapter 13 plans to be modified to account for a debtor’s financial hardships resulting from the pandemic. It states that Chapter 13 plans that were confirmed pre-COVID can be extended from the prior maximum plan period of 60 months or five years to a period of 84 months or seven years from the first plan payment of the original plan. This extension of time will of course result in a lower plan payment for the debtor.
It is noted that this modification is given to debtors negatively impacted by COVID. For example, the debtor lost his job because he got infected by COVID or the employer just closed the business due to COVID. However, some bankruptcy courts have allowed this modification to debtors who have only been indirectly impacted by COVID.
In other words, bankruptcy courts have been given the discretion to decide what the best interests of the debtor are because of the pandemic, at the expense of the best interest of creditors which was the norm before the pandemic. I reiterate this discretion given to the courts will not last forever. They are temporary in nature. The first expiration was the end of this year.
3. Courts may grant Chapter 13 discharge to debtors who have defaulted on mortgage payments not exceeding three months.
This is a very big deal. First, again, the law gives bankruptcy courts discretion to grant debtors who are on Chapter 13, on notice and hearing, if they are negatively impacted by COVID, to request a discharge of their debts if they have a mortgage that is in arrears but not exceeding three months of arrears!
For example, the debtor has a confirmed plan pre-COVID that pays half of his unsecured debt of $100,000. So the plan pays $50,000. At this time, the debtor has paid thru his plan $10,000 of the $50,000. If the debtor is now on forbearance, or even without an active forbearance is up to three months in arrears of his mortgage, he can actually request the court, after notice and hearing, to request discharge of all of his unsecured debt of $100,000! This is a tremendous relief for the debtor. The debtor will be left only owing only the arrears on his mortgage not exceeding three months, which he can pay under “cure and maintain” over an extended period of 84 months from the first plan payment.
This scenario we have never seen before in bankruptcy. This means the judge can disregard the best interest of the creditors and can disregard even the liquidation analysis when compared to Chapter 7 where equity exceeds the home exemption amount due to current much higher home equities. Certainly, this is case to case but no doubt the courts have the power to grant the discharge under these circumstances to a debtor who is negatively impacted by COVID.
If drowning in debt, see Psalm 91 written by the guy who killed Goliath.
For those drowning in debt, I refer you to Psalm 91 written by Kind David (the guy who killed the Philistine giant Goliath when he was only 15 years old, with a sling shot), “God says, “I will save those who love me and will protect those who acknowledge me as Lord, when they call to me, I will answer them; I will rescue them and honor them. I will reward them with long life; I will save them.” You need to call out to God through his beloved son Jesus Christ to rescue you from drowning in debt.
Who is the Blessed Carlo Acutis? He has something to say to you.
If you are a doubting Thomas, I refer you again to the website of the Blessed Carlo Acutis who died at the age of 15 in 2007. He was a computer geek genius who loved Jesus. He set up a website that chronicles miracles all over the world that prove that the Holy Eucharist is truly made of the heart of Jesus; real flesh and blood with DNA of Jesus. No kidding. And get this, the body of Carlo Acutis is in Rome, Italy for you to see in its incorruptible form, just like he is asleep wearing jogging pants and rubber shoes and a jacket, 14 years after he died of cancer. He predicted his own death. He started going to church every day at the age of 7 and received communion every day since that time until his death. He is very close to Jesus that’s why his body is incorruptible! You can use the French Bee budget airline, which offers one way to Paris from Newark, NJ at $139. Then from there, just drive to Rome where you can see his incorruptible body. Jesus is for real and our God is for real! Bring your whole family and they will enjoy it.
It will give you and your family deep faith in the one true God.
I am grateful to my friend and high school Xavier class ‘69 classmate Phil Ong from the East Coast who recently introduced the Blessed Carlo Acutis to me.
If you need debt relief, please set an appointment and I will analyze your case personally.
Lawrence Bautista Yang specializes in Bankruptcy, Business, Real Estate and Civil Litigation and has successfully represented more than five thousand clients in California. Please call Angie, Barbara or Jess at (626) 284-1142 for an appointment at 20274 Carrey Road, Walnut, CA 91789 or 1000 S. Fremont Ave., Mailstop 58, Building A-10 South, Suite 10042, Alhambra, CA 91803.