COVID-19 & Bankruptcy

The novel coronavirus (COVID-19) has created one of the worst health crises in history, with over 400,000 deaths worldwide and counting. With many states issuing stay at home orders, the closure of non-essential businesses, and widespread layoffs and furloughs, the U.S. unemployment rate soared to 14.7% in April, the highest level since the Great Depression of the 1920s and 30s.

Although much of the world continues to remain on hold while we deal with COVID-19, those facing financial hardships are still able to file for bankruptcy. However, with the signing of the Coronavirus Aid, Relief and Economic Security (CARES) Act into law on March 27, 2020, several temporary changes were made the U.S. Bankruptcy Code, set to last for one year.

COVID-19 Relief Payments Excluded From “Income”

The CARES Act includes a $2 trillion economic relief package with the aim of alleviating the economic impact of the virus. Part of this package includes cash payments of up to $1,200 to qualifying Americans, $2,400 for married couples, and $500 for children. The CARES Act amended the U.S. Bankruptcy Code § 101(10A)(B)(ii) to specifically exclude relief payments such as these from the income calculation for eligibility under Chapter 7, and the “disposable income” requirement of a Chapter 13 plan. This applies to both future Chapter 13 debtors and Chapter 13 debtors who did not have confirmed plans as of March 27th.

Chapter 13 Plans May Be Extended

Typically, Chapter 13 bankruptcy plans allow a debtor to keep property and make payments for a period of three to no more than five years.

The CARES Act allows modification adds an amendment to § 1329 of the Bankruptcy Code, stating:

“[F]or a plan confirmed prior to the date of enactment of this subsection, the plan may be modified upon the request of the debtor if the debtor is experiencing or has experienced a material financial hardship due, directly or indirectly, to the coronavirus disease 2019 (COVID–19) pandemic[,] and the modification is approved after notice and a hearing. A plan modified . . . may not provide for payments over a period that expires more than 7 years after the time that the first payment under the original confirmed plan was due.”

This gives debtors the opportunity to modify their Chapter 13 plans to a maximum of 7 years, upon the showing of a “material” hardship, due “directly or indirectly” to COVID-19, subject to approval from a bankruptcy court.

Updates to Bankruptcy Courtroom Policies & Procedures in the United States Bankruptcy Court for the Southern District of New York

On March 20, 2020, the United States Bankruptcy Court for the Southern District of New York issued General Order M-543, which provided that:

  1. All hearings and conferences to be held in courthouses comprising the Manhattan, White Plains, and Poughkeepsie Divisions of the Bankruptcy Court will be conducted telephonically, and any parties interested in appearing in person should file or submit an appropriate motion or request to be considered by the Bankruptcy Judge.
  2. Any parties with upcoming evidentiary hearings or trials should contact the Bankruptcy Judge’s law clerk or courtroom deputy as to whether such hearing or trial will proceed as scheduled, and if so, should discuss procedures and technology required for conducting such hearing or trial remotely.
  3. Bankruptcy Court personnel are permitted to record telephonic hearings, conferences, and trials, which will be the official record.
  4. The three Divisions of the Bankruptcy Court will remain open until further notice, with personnel being available by telephone, mail being accepted, and intake desks remaining open to receive pro se filings.

Furthermore, on April 9, 2020, the United States Bankruptcy Court for the Southern District of New York issued General Order M-545, concerning cases filed by an individual under chapters 7, 11, 12, and 13 of the United States Bankruptcy Code.

This affects bankruptcy cases in a number of ways:

  1. The Court suspended the requirement of an original signature to electronically file a document bearing that signature, provided that, before filing, the CM/ECF user
    1. Verifies with the signer that the signer has received the entire document to be filed, obtains express written permission (such as by email or text) from the signer to affix the signer’s signature to the document and retains a hard copy of the written permission;
    2. Obtains in his or her possession at the time of the filing an image, photograph, or other facsimile of the signer’s signature on the signature page of the document, and retains a hard copy of such image, photograph, or facsimile; or
    3. Obtains the signer’s digital signature via any commercially available digital signature software that provides signature authentication and instructs the signer to send or deliver the original signed paper(s) to the CM/ECF user as soon as is practicable.
  2. The Court requires any creditor who provides a temporary suspension of mortgage payments to a debtor to file a Notice of Temporary Forbearance with the Court. Furthermore, communication between a creditor and a debtor regarding forbearance is not considered a violation of the automatic stay, and a loss mitigation order is not needed for a debtor to enter a forbearance agreement.
  3. The Court extended any deadlines under the Loss Mitigation Program Procedures or Student Loan Mediation Program Procedures that had not expired as of March 16, 2020 to July 1, 2020.
  4. The Court suspended the requirement of an original copy of a Social Security card or document establishing a debtor’s identification, giving the trustee authority to accept evidence appropriate to establish the existence of such document.

Do you have questions about bankruptcy? Or are you ready to file? Our Fishkill bankruptcy lawyer is ready to help you. Contact us today for a free consultation.

Addendum

(b) BANKRUPTCY RELIEF.—

(1) IN GENERAL.—

(A) EXCLUSION FROM CURRENT MONTHLY INCOME.—Section 101(10A)(B)(ii) of title 11, United States Code, is amended—

(i) in subclause (III), by striking “; and” and inserting a semicolon;
(ii) in subclause (IV), by striking the period at the end and inserting “; and”;
(iii) by adding at the end the following:

“(V) Payments made under Federal law relating to the national emergency declared by the President under the National Emergencies Act (50 U.S.C. 1601 et seq.) with respect to the coronavirus disease 2019 (COVID–19).”.

(B) CONFIRMATION OF PLAN.—Section 1325(b)(2) of title 11, United States Code, is amended by inserting “payments made under Federal law relating to the national emergency declared by the President under the National Emergencies Act (50 U.S.C. 1601 et seq.) with respect to the coronavirus disease 2019 (COVID–19),” after “other than”.

(C) MODIFICATION OF PLAN AFTER CONFIRMATION.—Section 1329 of title 11, United States Code, is amended by adding at end the following:

“(d) (1) Subject to paragraph (3), for a plan confirmed prior to the date of enactment of this subsection, the plan may be modified upon the request of the debtor if—

“(A) the debtor is experiencing or has experienced a material financial hardship due, directly or indirectly, to the coronavirus disease 2019 (COVID–19) pandemic; and
“(B) the modification is approved after notice and a hearing.

“(2) A plan modified under paragraph (1) may not provide for payments over a period that expires more than 7 years after the time that the first payment under the original confirmed plan was due.

“(3) Sections 1322(a), 1322(b), 1323(c), and the requirements of section 1325(a) shall apply to any modification under paragraph (1).”.

(D) APPLICABILITY.—

(i) The amendments made by subparagraphs (A) and (B) shall apply to any case commenced before, on, or after the date of enactment of this Act.
(ii) The amendment made by subparagraph (C) shall apply to any case for which a plan has been confirmed under section 1325 of title 11, United States Code, before the date of enactment of this Act.

(2) SUNSET.—

(A) IN GENERAL.—

(i) EXCLUSION FROM CURRENT MONTHLY INCOME.—Section 101(10A)(B)(ii) of title 11, United States Code, is amended—

(I) in subclause (III), by striking the semicolon at the end and inserting “; and”;
(II) in subclause (IV), by striking “; and” inserting a period; and
(III) by striking subclause (V).

(ii) CONFIRMATION OF PLAN.—Section 1325(b)(2) of title 11, United States Code, is amended by striking “payments made under Federal law relating to the national emergency declared by the President under the National Emergencies Act (50 U.S.C. 1601 et seq.) with respect to the coronavirus disease 2019 (COVID–19),”.

(iii) MODIFICATION OF PLAN AFTER CONFIRMATION.—Section 1329 of title 11, United States Code, is amended by striking subsection (d).

(B) EFFECTIVE DATE.—The amendments made by subparagraph (A) shall take effect on the date that is 1 year after the date of enactment of this Act.

Sources:

https://www.congress.gov/116/bills/hr748/BILLS-116hr748enr.pdf

http://www.nysb.uscourts.gov/sites/default/files/m545.pdf

http://www.nysb.uscourts.gov/sites/default/files/m543.pdf

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