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The CARES Act is helping prevent Chapter 13 Bankruptcy Plans from being dismissed.
During the Pandemic many individuals in Chapter 13 Bankruptcy are finding it difficult to continue their plan payments. This is due to many filers experiencing reduction of work hours, layoffs, and furloughs, leading to a decrease in their overall household income.
A Chapter 13 Bankruptcy is analogous to a court ordered debt consolidation plan typically lasting 60 Months. In Chapter 13 Individuals make a monthly payment to the bankruptcy plan. That payment is then split among creditors.
Abatement of Missed Plan Payments:
If a Bankruptcy filer misses plan payments then their case will eventually be dismissed. To help prevent dismissal, under the CARES Act filers are able to extend their Chapter 13 Bankruptcy Plans from the prior maximum commitment period of 60 months to a longer period of 84 months.
This can help filers to abate missed payments through extending length of their plans. This will allow the missed payments to be added on at the end of the plan.
Pay Secured and Priority Creditors:
In order for many Chapter 13 Bankruptcy Plans to be successful, individuals must pay off their tax debt (priority creditor) or mortgage arrears (secured creditor) during the plan commitment period.
If an individual’s income has decreased then paying off mortgage arrears or priority creditors may not be possible. If the decreased income was a result of Covid-19, then the Chapter 13 Plan may be extended 24 months. The additional payments could allow enough income over the course of the extended plan to pay off the secured and priority debts.
Procedure for utilizing the provisions for the CARES Act:
The bankruptcy filer must file a motion with the court to Modify their Chapter 13 Plan to utilize the options to extend their plan to either abate, or pay off their priority and secured creditors. At the time of this article, the court must approve the modification by March 27, 2021. (Now Extended to March 27, 2022 - H.R. 1651).