What Does The Covid-19 Bankruptcy Relief Extension Act Do For Small Businesses And Individuals Who Want To Take Advantage Of Filing Bankruptcy Now?

For small businesses, the main effect of the COVID-19 Bankruptcy Relief Extension Act was to leave in place a temporary increase in the 2. 5 million debt limit for subchapter V Small Business Filings to 7.5 million of combined secured and unsecured debt. The enhanced debt limitation was due to expire on March 27, 2021. The Extension Act included another year with the extension to end on March 27, 2022. For individuals, there were several other benefits also extended for another year. First, individuals who had a confirmed plan as of March 26, 2020, are eligible to extend plan payments for two years if they can show a material adverse financial hardship due to COVID-19. Second, the definition of disposable income in the Bankruptcy Code for chapter 7 and chapter 13 debtors does not include Coronavirus-related payments for purposes of applying the means test when filing bankruptcy.

The other aspect that the Extension Act addressed is the calculation of current monthly income for a chapter 13 plan. That calculation does not include any recovery rebates that receive from the federal government or any state enhanced unemployment benefits that are received under those programs.

Are Federal COVID-19 Related Relief Payments Included In The Calculation Of Disposal Income For Purposes Of Confirming A Chapter 13?

The federal COVID relief payments are expressly excluded from determining the debtor’s projected disposable income to confirm a chapter 13 plan. That is part of the Extension Act that assists individual debtors along with the recovery rebates and unemployment benefits that are not counted as income.

What Aspects Of The Bankruptcy Code Were Not Extended By the Extension Act?

The Extension Act did not specifically extend certain aspects of the Bankruptcy Code modified under the Consolidated Appropriations Act known as the “CAA.”. 11 U.S.C. 366 is one Bankruptcy Code section modified under the amendment under the Consolidated Appropriations Act preventing utility services from being disconnected for a customer if that debtor pays utility company for all services owed in the 21-day post-bankruptcy filing period and continues to make all post-petition utility payments, even if that debtor does not provide the utility company with a deposit for adequate assurance of future payment. The second provision that was not extended was a discrimination section. The Consolidated Appropriations Act amended 525 of the Bankruptcy Code to provide that debtors will not be denied relief under three specific CARES Act provisions solely because the person is or was a debtor in the bankruptcy case. The provisions that the debtors are not allowed to be discriminated relate to the foreclosure moratoriums, forbearance and eviction filings. This provision will sunset on December 27, 2021.

The final provision under the CAA not extended under the Bankruptcy Relief Extension Act deals was the ability of Chapter 13 debtors to obtain discharges if they are no more than three monthly payments behind on a residential mortgage if the delinquency was due to a material COVID-19 related financial hardship. The effect of the discharge will not discharge the mortgage debt owed, but the debtor will be eligible to receive a discharge even if they have not completed all payments under the plan, which may extend beyond the permitted 60 month plan term.

As a result of the federal and state moratoriums and forbearances, a debtor may not have made contractual mortgage payments for a defined time. It could be 180 days or longer. The mortgage loan servicers are allowed to file what is known as a CARES Act Forbearance Claim. Due to those CARES Act Forbearance Claims, the servicer itself can file a claim for the deferred payments even if the bar date for filing of claims in the case has passed. The debtors are also authorized under the Consolidated Appropriations Act and under 11 U.S.C. 1329 of the Bankruptcy Code to file a proposed modified plan to address the CARES Act Forbearance Claims. This provision will also sunset on December 27, 2021 and was not extended.

Will The Child Care Tax Credits Affect The United States Trustee Position On Whether A Case Is Presumptively Abusive Under 11 USC 707?’

In 2021 the only year expanded tax credits are applicable, individual filers making over $75,000, $112,500 for heads of household, and $150,000 for joint filers will start receiving advanced payment in the amount of 50% of estimated allowed child tax credits for the tax year 2021. The amount is being increased to $3,600 for children under six years old, which supplements the existing $2,000 tax credit for an eligible child. The United States Trustee by Memorandum sent to its Trustees, stated that they are not to consider the additional child tax credit amount or any advanced payments of the child tax credit to determine whether a presumption of abuse arises in consumer bankruptcy filings under 11 USC 707. The United States Trustee program does not expect the additional tax credits to be a factor in determining projected disposable income in chapter 13 cases because the expanded tax credit is limited to 2021.

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