What Exactly Is The CARES Act And How Has It Affected Bankruptcy Practice?
In response to challenging and difficult economic times, U.S. Congress passed the Coronavirus Aid Relief and Economic Security (CARES) Act on March 27, 2020. The CARES Act provides a two trillion-dollar economic stimulus for U.S. industries and businesses who have been affected by the coronavirus pandemic.
One of the main provisions with regard to bankruptcy law is that if an individual has a confirmed Chapter 13 plan as of March 27, 2020, then they can seek to extend that plan beyond the limit of 60 months for another two years to an 84-month plan. A Debtor seeking the extension of their Plan must t show material financial hardship due to the coronavirus pandemic. To accomplish this, individuals will have to file a modified plan and seek confirmation of that plan. The provisions of the CARES Act that provided for an extended Chapter 13 Plan will sunset or expire within a year. After March 28, 2021, Debtors will no longer be eligible to have their 60-month Chapter 13 plan extended to an 84-month plan.
Another provision of the CARES Act deals with the calculation of disposable income for the purposes of confirming a Chapter 13 plan. This calculation does not include coronavirus-related payments of up to $1200.00 for individuals and more if there are dependents. Also, the federal stimulus of $600 per month additional unemployment payment is excluded from the means test.
The CARES Act also put into place the Small Business Reorganization Act (SBRA), which has been in effect since February of 2020. This law increased the debt limit for businesses that want to take advantage of subchapter “V” of the bankruptcy code. The debt limitation for businesses was increased from $2.7 million to $7.5 million, which will revert to the original amount in March of 2021.
Other provisions address retirement distributions. Individuals can take distributions from 401(k) plans, qualified retirement accounts, and IRAs up to $100,000 without having to pay the 10 percent penalty on early distributions. This is typically applicable for people who are under 59 and a half years old and can prove that the distribution is related to adverse financial consequences experienced as a result of factors related to COVID-19. In terms of the 401(k) loans, will have three years to pay back the taxes on those loans as opposed to only one year. Additionally, there is an interesting provision that allows for the avoidance of tax consequences if the money is repaid under the plan. Another significant provision is that for a period of six months (ending September 30, 2020), all federal government student loan payments are deferred.
The CARES Act has also implemented a foreclosure moratorium for federally-backed loans, which comprise about 60 percent of the loans involving commercial business. Individuals who have been affected by COVID-19 are able to seek 180-day forbearances on residential mortgage payments. Private lenders are not required to grant the forbearances, but many are receptive to requests for payment extensions.
For more information on CARES Act, an initial consultation is your next best step. Get the information and legal answers you are seeking by calling (908) 373-8500 today.
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