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COVID-19 and Your Chapter 13 Repayment Plan

chapter 13 repayment plan

Twenty-two million Americans lost jobs because of the COVID-19 pandemic shutdowns. Many of them were facing financial struggles even before the pandemic began. If you had a Chapter 13 repayment plan in place before the Coronavirus hit, the past year may have made it especially difficult to make your payments on time. However, there is relief available to help you keep your bankruptcy repayment plan on track.

Chapter 13 Bankruptcy Depends on Keeping Your Debt Repayment Plan

When you file a petition for bankruptcy under Chapter 13, you are making a promise. You promise that, for the next three to five years, you will put all your disposable income toward repaying your debts. In exchange, the government promises to discharge any eligible debts that remain unpaid at the end of that period.

However, unexpected life changes can make keeping your promises difficult. Many people who file Chapter 13 bankruptcies find themselves unable to complete their payment plans because of:

  • Job loss or loss of income
  • Unexpected emergencies
  • Increased medical expenses
  • The need to take on new debt

According to the most recent U.S. Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) Report, 50% of Chapter 13 bankruptcy petitions that are dismissed without discharge are because the debtor failed to make plan payments on time. Nearly 23,000 cases were refiled after dismissal in 2019 alone. And that was before COVID-19 affected the U.S. economy.

CARES Act Says COVID-19 Stimulus Doesn’t Count as Income

In the first months of the pandemic, state shutdowns and stay-at-home orders meant 22 million workers lost their jobs all at once. The COVID-19 shutdown in Michigan hit residents harder than any other state, according to economist Paul Isely of Grand Valley State University. Those jobs are returning, but many low-income workers are still unemployed.

In response to the pandemic, on March 27, 2020, Congress passed the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). This law sent stimulus payments directly to residents and businesses. It also changed the Bankruptcy Code, saying those stimulus payments (and later payments made in the following months) didn’t count as income.

That designation was important to people with pending Chapter 7 and Chapter 13 bankruptcies. In a Chapter 7 bankruptcy, all non-exempt assets, including your income, can be used to pay off your creditors. In a Chapter 13, filers are expected to use their income to satisfy their payment plans. Excluding the COVID-19 stimulus payments from filers’ income meant they could keep that money and use it to live through the shutdowns.

CARES Act Extension Applies to Chapter 13 Bankruptcy Repayment Plans

If you were maintaining a Chapter 13 repayment plan in March 2020, the CARES Act also gave you another benefit. The CARES Act and the later COVID-19 Bankruptcy Relief Extension Act of 2021, allows debtors who have experienced “material financial hardship” due to COVID-19 to modify their Chapter 13 payment plan, extending it to up to 84 months, instead of the usual 60.

Originally, this extension only applied to plans that were confirmed before March 27, 2020. Plans that were created after the pandemic started could only be extended to 60 months (or 5 years). However, the COVID-19 Bankruptcy Relief Extension Act of 2021 expanded the extension to include all plans confirmed prior to March 27, 2021. That means that debtors affected by Michigan’s second wave of shutdowns may still qualify for relief.

Get Help Modifying Your Chapter 13 Repayment Plan

If you qualify for a payment plan modification under the CARES Act, you will need to file a motion in bankruptcy court that demonstrates the financial hardship you have faced because of COVID-19 related job loss or decreased income. Extending your Chapter 13 repayment plan may keep your petition from being dismissed and extend protections against home foreclosure and vehicle repossession. However, it also means you will need to live an austere lifestyle for up to two years longer than anticipated. Talk to an experienced bankruptcy attorney to find the right balance between extended payments and financial relief.

At John A. Steinberger & Associates, P.C., we are a full-service bankruptcy law firm in Southeast MI. We help debtors and families in Southfield, throughout Metro Detroit, and in the surrounding communities. We are committed to helping new and existing clients get through the COVID-19 shutdown with their bankruptcy plans intact. If the Coronavirus is threatening your bankruptcy repayment plan, call us toll-free at (866) 690-2140 or contact us online to schedule a free initial phone consultation.

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