Bankruptcy and 2021 Stimulus Checks – What You Need to Know
Will you lose your stimulus check to a bankruptcy trustee if you file bankruptcy now and are expecting a stimulus check? In 2020, the stimulus checks were not taken in bankruptcy. Everyone was able to keep their stimulus checks and bankruptcy trustees were told not to touch them.
Can The Bankruptcy Trustees take Stimulus Checks?
Included in the nearly 5,600-page Consolidated Appropriation Act (CCA), Pub. L. No. 116-260 (Dec. 27, 2020), are a number of new protections for consumer bankruptcy debtors.
CCA adds a new Bankruptcy Code § 541(b)(11) to the list of exclusions from property of the bankruptcy estate, and states that “recovery rebates made under section 6428 of the Internal Revenue Code of 1986” are not property of the estate.
This means that the $600 stimulus payment ($1,200 for eligible married couples with an additional amount of $600 per qualifying dependent) provided under the CCA may file bankruptcy without worry.
It appears that this will protect any future stimulus payments, provided that Congress authorizes them under this same Internal Revenue Code provision as an advanced tax refund.
2021 Stimulus Checks Should not be Taken in Bankruptcy
The last stimulus check issued to consumers under the CARES Act was explicitly declared “off limits” to trustees shortly after the checks were issued.
Consumers are getting precious little help from the government to make it through the economic devastation caused by COVID 19. Stimulus payments SHOULD be protected from creditors and trustees.
While no similar exclusion from disposable income was included in the CCA, a separate non-bankruptcy provision of the CCA amends tax law by providing that “no applicable payment shall be subject to, execution, levy, attachment, garnishment, or other legal process, or the operation of any bankruptcy or insolvency law.” This provision was intended to protect stimulus payments from collection actions.
Do creditors and courts know about this or will you need to fight creditors if they try to collect from stimulus money? I’m aware of no cases yet…. but my prediction is that consumers will have to fight for their right to keep their money.
In bankruptcy, for cases filed between December 27, 2020 and March 27, 2021, stimulus payments in the form of an advanced tax refund are fully protected. For cases filed between March 28, 2021 and December 27, 2021, stimulus payments in the form of an advanced tax refund are not considered as part of the consumer’s “bankruptcy estate” and so, can be kept by the consumer without needing to use your exemptions.
Will the $2,000 Stimulus Check be Protected if If I File for Bankruptcy?
What about the additional stimulus checks the new administration is promising? There have been discussions about the $2,000 per person stimulus checks being approved for weeks now. While it remains to be seen if these stimulus checks will materialize, I believe that, if issues, these will be protected from trustees in bankruptcy as well.
Should You Use Your Stimulus Check to Pay Bills or File for Bankruptcy?
In fact, the $2,000 stimulus checks, should they be issued, or even the $600 checks, will be used by some savvy consumers to pay for chapter 7 bankruptcy to wipe out ALL their debts. This will, for some, be the REAL RECOVERY they need.
The average chapter 7 consumer owes $20,000 or more in unsecured debt. Using any stimulus money to pay this debt will hardly make a difference, long term, for the average consumer.
But, if instead of using a stimulus check to pay debt, consumers use the money to file bankruptcy, the relief they get will be real, and lasting.
Consumers certainly need all the help they can get, and the stimulus checks, regardless of the amount, are, of course, welcome assistance. But using a stimulus check to pay debt that can be totally discharged in bankruptcy is not the best move for most consumers.
Whether we see just the $600, or Washington approves $2,000, think hard about how to put the stimulus check to it’s best use for your future. Using your 2021 stimulus check to file bankruptcy might be the best move you could make. If you would like a free, no-contact, consultation on your current financial status or to see if bankruptcy is right for you call us at (937) 748-1749 or contact us. We are here to help.