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10 Ways COVID-19 And The CARES Act Changed Consumer Bankruptcy

10 Ways COVID-19 and the CARES Act Changed Consumer Bankruptcy

It has been over a year at this point, and COVID-19 continues to wreak havoc around the world. While working vaccines promise some help, they are available in limited numbers only, and distribution is not equal. However, ongoing social distancing, mask-wearing, and economic depression are not the only legacies of the virus. Both COVID-19 and the CARES Act have had profound effects on consumer bankruptcy.

1. Lengthened Span

One of the most notable changes to consumer bankruptcy is that Chapter 13 plans may now exceed the previous five-year limit in certain situations. In order for this to occur, the debtor must be able to prove they were experiencing a hardship due to COVID-19 and their plan must have been confirmed prior to March 27, 2020, and plans can only be extended to a maximum of seven years.

2. Relief Payments Don’t Count as Income

Another change is that any relief payments made by the government cannot be counted under the disposable income requirement of confirmation under the Bankruptcy Code. They are also excluded from Chapter 7 income calculation for eligibility.

3. No Proof Necessary

In some cases, bankruptcy trustees have agreed to longer time periods, as well as second moratoriums.

4. Conduit Plans

So-called “conduit plans” are now becoming possible thanks to Operating Order 20-08 issued by Judges Duncan and Waites of the US Bankruptcy Court for the District of South Carolina. In this situation, debtors are required to make all mortgage payments on their principal residence to the trustee, rather than the creditor.

5. Deferred Mortgage Payments

Debtors working with creditors to establish a deferred mortgage payment plan due to COVID-19 hardships will need to work with the trustee to seek approval for modifications to conduit plans with the court.

6. Payments to the Creditor

In plans where the creditor is making mortgage payments directly to the creditor, that creditor will need to work directly with the debtor to reach an agreement on things like deferment, loan modification, or forbearance. These changes will also need to be submitted to the court with a timely Notice of Payment Change.

7. Federally-Backed Loans Get Relief

The CARES Act provides substantial relief for debtors with federally-backed loans. Loan servicers in these situations are not allowed to begin the foreclosure process, move a process already begun forward, evict due to foreclosure, order a property sold. Several states have also issued similar legislation, and creditors should note that these build on, rather than replace, federal rules.

8. Forbearance under the Cares Act

Borrowers with federally-backed mortgage loans who also suffer from hardships due to COVID-19 can request forbearance of mortgage payments. This period can last for up to 180 days. Multi-family property residents also enjoy protection from eviction if the property owner requests forbearance.

9. Eviction Help

Landlords of buildings secured by a federally-backed mortgage, or one participating in federal housing programs, is prevented from any eviction action. Originally slated to end 120 days after March 27, 2020, this has been extended due to the ongoing pandemic and increased financial hardships.

10. Help with Student Loans

Finally, the CARES Act suspends all payments and waives all interest on federal student loans. Originally slated to end in September 2020, this has also been extended.

While COVID-19 has had an undeniable impact on the nation, we are working together to help everyone get through. If you have questions about your financial situation, the status of your debt in relation to COVID-19 related hardships, or need to consider bankruptcy, contact us today to schedule your consultation.

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Las Vegas, Nevada 89123