CARES Act, Part Two: Plan Payment Issues Resulting from COVID-19
Updated: Apr 22, 2020
In Part Two, we discuss the CARES Act amendments to Section 1329(d)(1) of the Bankruptcy Code, regarding what happens when a chapter 13 debtor can no longer make his or her plan payments as a result of the COVID-19 pandemic.
Under amended Section 1329(d)(1) of the Bankruptcy Code, debtors with plans confirmed prior to the enactment of the CARES Act on March 27, 2020, may modify and extend their confirmed chapter 13 plans from the standard three or five year plan to a seven year plan. To qualify for the seven year modification, a debtor must show that his/her inability to make the original plan payments has been directly or indirectly caused by the COVID-19 pandemic. No precise definition of what this means has been provided in the CARES Act. It could be reasonably construed to mean illness, job loss, or other loss of income by the debtor or others who ordinarily contribute to the debtor's income.
For those debtors who did not yet have confirmed plans prior to the enactment of the CARES Act on March 27, 2020, they still may be entitled to modify their plans, once confirmed, to address future financial hardship caused by COVID-19, using the pre-existing modification provisions set forth in the Bankruptcy Code. However, the option to modify a confirmed plan to an extended seven year plan will not be available. Debtors are encouraged to consult a licensed bankruptcy attorney to explore all potential avenues of relief that may available.
All of the amendments to the Bankruptcy Code made by the CARES Act include a sunset provision, meaning that the amendments will expire one year from the enactment of the CARES Act. (i.e. on March 27, 2021). It is unclear what effect, if any, the sunsetting of the amendments will have on cases that receive the 7 year modification during the applicable time period.
This article is meant for informational purposes only. It does not constitute legal advice and the reading of it does not create an attorney-client relationship between the author and the reader. All readers are encouraged to speak to a licensed bankruptcy attorney in the state they reside in for legal advice specific to his/her unique circumstances.