Coronavirus (COVID-19) and Bankruptcy: Everything you need to know

With the Coronavirus (COVID-19) pandemic many people and are starting to question their financial future. We’ve assembled a list of the most frequently asked questions consumers need answers to.

What is the CARES Act?

The CARES Act – the biggest in history – aid package ever. 

    • $290 billion in direct payments to eligible taxpayers
    • $260 billion in expanded unemployment insurance
    • $150 billion for state and local governments
    • $510 billion in expanded lending for businesses and local governments
    • $377 billion in new loans and grants for small businesses
    • $127 billion for hospitals for ventilators and other equipment

What’s in it for you?

Stimulus checks are supposed to be sent out the week of April 13, according to the IRS. The IRS will use your 2018 or 2019 tax return  to figure your stimulus check amount. If you don’t file, the IRS has set up an online tool for you to use.

If you don’t file, the IRS won’t have bank account info to direct deposit your check.  But this could be a good thing, especially if you have judgments against you.  Creditors know you are getting money and they want it.  Check it out here: https://www.debtfreeohio.com/bankruptcy-information/debt/can-debt-collectors-take-stimulus/

Although there are some protections for consumers built into the CARES act, creditors are hard at work trying to get your money.  Courts continue to operate, generally, and thousands of collection lawsuits are being filed every day, and garnishments are, in many areas, still being processed.

Unemployment Benefits in the CARES Act.

The Coronavirus has left many without jobs, and looking to get unemployment.  Ohio’s unemployment claims have totally overwhelmed the state’s ability to process them.  In addition to state unemployment the CARES Act provides for an additional $600 a week for four months.  Some people may get more in unemployment benefits than they earned working!

Who is eligible for the Coronavirus (COVID-19) stimulus check?

Good news!  Most people ARE eligible for the Coronavirus (COVID-19) stimulus check.

Are you eligible for a stimulus payment

And, how much?

Your check will depend on your total income in 2019 or 2018.

If eligible for the Coronavirus (COVID-19) stimulus check, you will get one single payment.

Here’s who qualifies:

    • If you’re a single US resident and have an adjusted gross income less than $99,000, or
    • If you file as the head of a household and earn under $146,500, or
    • If you file jointly without children and earn less than $198,000

So, most people WILL be eligible for some kind of stimulus check.

If you are a single single taxpayer

If single, you need to have a Social Security number and adjusted gross income under $75,000 to get the full amount of $1,200. The amount you get goes down as your income goes up. If you earn $99,000, or more, you won’t get a check.

Head of household

If you are filing head of a household, you can receive $1,200 payment if your adjusted gross income is $112,500, but this amount decreases as your income goes up to $146,500.

Married filing jointly

Married joint filers, without kids, who have an AGI under $150,000 receive $2,400 which decreases to no check at an income of $198,000. To adjust for kids age 16 or younger add $500. Note: older children and other dependents may not be eligible for a payment.

Will I have to pay back the stimulus check?

Good news here. NO! You won’t have to pay back the stimulus check (even if you are somehow overpaid!).

While the stimulus check may come from the IRS, it’s not a tax refund, nor is it a loan, and you don’t have to pay the stimulus check back – ever.

The CARES act provides for this “recovery rebate” in the form of an “economic impact payment” to most Americans. It’s really a “refundable tax credit.”

And, although you usually cannot claim a “tax credit” until you actually file your taxes, under the pandemic situation we now have, the IRS is paying qualifying taxpayers this credit early, in the form of a tax credit – it’s not an advance on your refund, and will not lower your refund, either.

No matter what you call it, if you get it, it’s yours to keep and doesn’t need to be paid back, ever.

What if the stimulus check doesn't cover my bills?

It probably won’t.

And, really, nobody expected it to.

Some say that the stimulus checks won’t cover all the bills . . . too little . . . too late.

And, considering that most Americans don’t have adequate savings to cover bills for several months, the pain is very real.

Yes, the stimulus check will help cover some bills.

Here’s a few ideas to cover the bills beyond the stimulus check:

Personal loans.

Although often these loans have a high interest rate, you have to cover the bills now, and deal with the payments later, many of my clients tell me.

Credit Cards.

If you have credit now, you may want to apply for a new 0% credit card.  Do a balance transfer, and free up credit on a higher interest rate card. This may provide you with additional breathing room to get through until things get better. 

Selective Non-Payment

Since the stimulus check won’t cover all the bills, for sure, you have to make some tough choices. Which bills get paid, which have to wait? While there is a lot to consider here, one thing is clear. Credit card and personal, unsecured loans will have the lowest priority.  

Beyond this, your personal situation, other sources of income and debt structure all need to be considered to get the best answer.

Can you still file for bankruptcy during the pandemic?

YES, YOU CAN file bankruptcy during the Coronavirus (COVID-19) pandemic.

The Bankruptcy Courts are open. Law offices in Ohio are deemed essential by Gov. Mike DeWine’s shut-down order. 

Bankruptcy courts are open and operating during the pandemic, but there are changes in their operations.  

Attorneys continue to file electronically, but consumers who file pro se, without attorneys, have to file by mail in many locations.

The trustee meetings, also called section 341 meetings, are being held by telephone for the time being due to Coronavirus (COVID-19), see their website for more info:  https://www.justice.gov/ust

Court operations are being carried on with many of the Court staff working from home. 

What does all this mean to you if you need to file bankruptcy during the coronavirus pandemic?

You can still get bankruptcy relief.

Are Bankruptcy Courts Still Open?

Yes, bankruptcy courts are open! 

But not as accessible as before the coronavirus pandemic.

Most of the court staff is working from home, at least in Ohio. 

Bankruptcy cases are still being filed, but mainly by attorneys, who file electronically.  Pro Se (without an attorney) filings are accepted by mail only in Southern Ohio. For details, see https://www.ohsb.uscourts.gov/

There are currently no “in-person” hearings or meetings being scheduled.  

Emergency matters are being handled on a case-by-case basis.

During the COVID-19 pandemic the Ohio bankruptcy trustees, the court, and bankruptcy attorneys are all adapting to functioning remotely.    Business is still being conducted as close to normal as possible without any personal, face-to-face interaction.

Are 341 Hearings being postponed?

All 341 meetings were initially postponed, or continued, by General Order of the Court.

The initial order has been superseded by a new order which provides that – up to June 1, 2020, hearings will be conducted by telephone. 

The United States Trustee has issued instructions for the conduct of the chapter 7 trustee meetings, also known as section 341 meetings, here:  https://www.ohsb.uscourts.gov/news/notice-united-states-trustee-341-telephonic-instructions-chapter-7-cases

Chapter 13 section 341 meetings are also being conducted by phone, and each trustee has issued separate processes for these. Generally, these are 3-way calls, and the trustee will ask the same questions on the call that would be asked if the meeting were being conducted in person.

How long will this last? Nobody knows, of course. The safety of all the individuals involved is the primary consideration. The courts are expected to follow the guidance of the federal, state and local officials to ensure the safety of all the participants, while ensuring that the rights of all parties are protected.

Will I be able to keep my economic relief payments?

Initially it was unclear if, in bankruptcy, you would be able to keep the stimulus payments. Some of the Ohio trustees declared that they thought they had to take these stimulus payments in chapter 7 cases.

Good news.

The United States Trustee program has announced that they will not, in most cases, be attempting to take the stimulus payments in bankruptcy.  Visit: https://www.justice.gov/ust/file/cares_act_recovery_rebate_notice.pdf/download

The CARES Act itself does have a number of bankruptcy provisions.  Stimulus payments are not to be considered for the Current Monthly Income (the calculation that determines if you presumptively qualify for chapter 7 or have to do the means test), or the projected monthly income, which determined how much your plan payment would be in chapter 13.

The question left unanswered in the CARES Act or H.R. 748 was “who gets to keep the stimulus payment?”

Thankfully, the Unites States trustee program now states:

… the United States Trustee expects that it is highly unlikely that the trustee would administer the payment after consideration of all relevant circumstances . . .

“Due to the Coronavirus (COVID-19), the Trustee will not be seeking a turnover of any stimulus or economic relief payments related to the pandemic. “

Effective April 7, 2020, the official position of the United States Trustee Program is, essentially, that the stimulus checks are “off limits” to chapter 7 and chapter 13 trustees for most purposes, and in most cases.

Short and sweet version – … the United States Trustee expects that it is highly unlikely that the trustee would administer the payment after consideration of all relevant circumstances . . .

And, the notice goes on to state:

Trustees are directed to notify the United States Trustee prior to taking any action to recover recovery rebates or objecting to a chapter 13 plan based on the treatment of recovery rebates.

Reading between the lines, if any trustee thinks about going after a stimulus, they need to get the United States Trustee’s office involved BEFORE they go after the stimulus.

In the legal world, where everything seems to have an exception built in, this is about as close to a guarantee that you keep your stimulus check as you can get.

Will I still need to make a payment on my scheduled payment plan?

Yes, you are still required to make the plan payments in your chapter 13 bankruptcy.   

There is nothing in the CARES Act that suspends payments in Chapter 13 bankruptcy.  Nor have any of our chapter 13 trustees indicated that they will automatically suspend payment obligations.

In fact, legally, they have no power to do so.

The reality is that some will be unable to make their plan payments.

Even worse, for individual consumer debtors in chapter 13 plans with payroll deduction payments, there is a very real possibility that the chapter 13 plan payment will take all (or most) of their paycheck, and leave nothing for food and other living expenses. 

A POSSIBLE WAY THROUGH THIS MESS –

Here is a hypothetical scenario. Due to Coronavirus (COVID-19), consumer in chapter 13 loses job.  As a result of being overwhelmed, the state unemployment money is delayed for 8 weeks, as is the federal stimulus money.  No plan payment is possible.

Ordinarily, the trustee would file a motion to dismiss at this point. But, for now, the trustees are holding off. Many have indicated that no MTD would be filed for 3 months, in many cases.

Finally the unemployment comes in, as does the stimulus and the federal unemployment, but its not enough to catch up the payments. The chapter 13 debtor gets to 4 months behind.  

Finally its FIVE months behind. The job is now back but hours are reduced. 

Motion to dismiss filed.

The CARES Act has a provision to lengthen the plan for up to 7 years. 

This is not another 7 years added to the plan. This means a total of 7 years.

WE can respond to the MTD by modifying the plan, and getting an additional 2 years to make up the 5 missed payments. If the shortfall was $1,000 per month, for a total of $5,000, and if our debtor had 2 years left in his plan to begin with, we could catch this up with an additional $110 per month.

Chapter 13 trustees understand this. 

The several that I work with have all told me that they will work with us to modify court orders, examine cases individually and if the chapter 13 plan payment is more than the debtor can pay, they will hold off on filing a Motion to Dismiss the chapter 13 case for failure to pay. 

Their request, and my advice to my hundreds of chapter 13 clients is to pay what you can afford to pay, if you can afford to pay anything.  Do the best you can. It’s all you can do.

The trustees are NOT eager to see cases dismiss due to COVID-19.  The pandemic is hitting consumers in chapter 13, perhaps, even harder than most, because they were on a tight budget to begin with. It doesn’t take much to create a serious problem.

The goal in chapter 13 is to make payments, and get a discharge at the end.  Chapter 13 trustees (and all of us in the debtor’s bar) are working together to help everyone get through this.

What if I can’t make my plan payments due to COVID-19

In chapter 13, plan payments are mandatory. There is no Coronavirus (COVID-19) exception to the requirement to make the plan payments. 

However, the Coronavirus pandemic is making it impossible for many chapter 13 debtors to make their plan payments. What is the answer?

Missing plan payments in chapter 13 is nothing new. Even though COVID-19 is responsible for large numbers of chapter 13 cases being put in danger of failure, missing plan payments, due to injury, job loss or other factors is part of life in chapter 13. We save plans all the time when this happens.

And we will continue to save plans when we miss payments due to the  Coronavirus.

What to do when you miss plan payments?

First – and foremost – follow your attorney’s advice.

Understand that every trustee and every attorney will be working together on these Coronavirus cases, and there are different ways to approach them.

Second – follow your attorney’s advice.  (Yes, I intended to say it twice.) 

It does bear repeating.  

Often when in an emergency, fear sets in and you may be tempted to do something that, had you discussed it first with your attorney, you would not have done, or would have done very differently. I know this from over 30 years of dealing with chapter 13 clients. 

Everyone in the bankruptcy system, the Court, the trustees, your attorney, even, believe it or not, many of the creditors, want to help you to succeed, to complete your plan, to get your discharge. 

We will see creative approaches during the COVID-19 pandemic, such as we have never seen before, and hope to never see again. 

If you can’t make your chapter 13 plan payments right now, don’t feel alone, you have a lot of company, and a lot of help as well.

And, if all else fails, don’t forget that you can, in almost all cases, ride it out to dismissal, and refile. 

Do I still need to pay bankruptcy filing fees?

The CARES Act, passed in response to COVID-19 does not waive or forgive filing fees for bankruptcy cases. 

There are, however, options not related to the Coronavirus pandemic, that can help with the payment of bankruptcy filing fees.

The bankruptcy filing fee can be paid in installments, if one makes a request for an installment plan, and the court approves the request.  Failure to make the payments according to the terms of the court approved payment plan could result in the case being dismissed.

If a person is indigent, unable to pay the filing fee, the court does have the ability to waive the filing fee, but this has always been the case.  The filing fee waive is not related to the Coronavirus.

Will my automatic stay be affected?

The automatic stay, which instantly stops creditor actions upon the filing of a bankruptcy petition, is not affected by the coronavirus pandemic changes to court operations.

The CARES Act, which does have a number of bankruptcy provisions, favorable to consumers, does not in any way affect the automatic stay.

The automatic stay is immediately effective, to stop lawsuits, garnishments, foreclosures, and all types of creditor actions whenever a consumer files a chapter 7 or chapter 13 bankruptcy case.

The automatic stay will be more important in the near future, to those consumers who are falling behind in their payments due to the economic losses caused by COVID-19. 

Those who are unable to pay their bills, and are waiting for the economy to recovery and get back to work will often wait until they are forced to file bankruptcy to protect their paycheck from garnishment, their car from repossession, or their home from foreclosure. 

The automatic stay means that a person can file bankruptcy and obtain instant protection, even up to the day before a foreclosure sale, or the morning before the repo of their car is scheduled. 

Will my Discharge be delayed?

The Coronavirus had not closed the bankruptcy courts, for most purposes.  

Cases are still being filed, both Chapter 7 and chapter 13. 

Although initially the trustee meetings, also called section 341 meetings, were all continued, the Ohio bankruptcy trustees quickly devised ways to hold them using technology, Facetime, Zoom, or just by telephone. 

The Court is still issuing discharges in the normal course of processing cases, there will be no delay as a result of the COVID-19 changes in court operations.

Do I still need to make my mortgage payment?

There is no automatic suspension of your obligation to pay your mortgage payment. 

Everyone is confused because they are told by the president’s office and other officials that there are forbearance and relief options, but that’s actually only specific to certain mortgages.

Even more concerning is the lack of any rules on what happens, if your mortgage does qualify for a forbearance, when the forbearance period ends. 

Some are being told that the entire amount must be repaid in 90 days, which will be impossible for almost everyone.

Even more confusing, large mortgage lenders  often allow mortgage loan modifications which allow borrowers to “tack the missed payments onto the end of their loan.”

This essentially extends the loan by the same number of missed payments, or, alternatively, requires the missed payments to be paid in a lump sum at the end of the loan. Either of these would be manageable for most people.

Some counties in Ohio have stopped all foreclosure sales. This does not mean that the obligation to pay mortgages is suspended. This also does not mean that the foreclosure sale will not be conducted later. It also does not mean that foreclosure lawsuits are suspended. 

Many people who have suffered loss of income due to COVID-19 are unable to pay their mortgages, but there is no legal suspension of the obligation to pay your mortgage. 

If you are in doubt about your financial future because of the Coronavirus (COVID-19) pandemic, it is better to prepare now than to wait. Bankruptcy cases in Dayton Oh, Columbus Oh, and Cincinnati Oh, are already starting to pile up as many people find it hard to make ends meet. Protect yourself and your family by contacting a certified credit counselor / bankruptcy attorney today.