Lots of information out there about the new CARES Act and what it purports to do. It’s a huge document and has a lot of moving parts. In an attempt to pull out useful information for the average consumer and small business owner, we are working on a series of blog posts to help answer some questions.
The CARES Act has some specific protections for debtors in Chapter 13. For background, a Chapter 13 bankruptcy is a reorganization plan where you create a plan to pay back some or all of your creditors over a period of three to five years. All of your creditors get a copy of your plan and have the chance to object towards the beginning. Once the judge confirms the plan, you continue making a monthly payment to the Chapter 13 Trustee as outlined in your plan document.
The reason for the background is that the CARES Act allows us to stretch payments up to seven years, instead of the five-year limitation under the bankruptcy code. This is to allow people to be able to catch-up on payments and to keep plans from failing when people cannot make payments during this uncertain period when incomes have significantly dropped. However, in order to take advantage of this new provision, the Chapter 13 Plan has to be a CONFIRMED plan before the date of enactment of the CARES Act. That means that anyone who has recently filed a Chapter 13 case where the plan has not been confirmed yet may still be stuck in limbo with no income, but no way to extend payments.
If your Chapter 13 plan has already been confirmed, the new Act allows for modification and the extension of payments, but no standard procedures have been implemented yet for how those modifications will be done. Under normal circumstances, we file a motion to modify, send out the plan to all creditors for review, and then if there are no objections, the modified plan is approved. Keep in mind that we probably will want to modify after income has stabilized so that we can propose a plan that you can actually keep up with for the rest of the case.
If you are in a Chapter 13 plan now, you should try and make some sort of payment towards your plan each month, even if it’s not a full payment. When we go back to reconcile total payments, that will help in keeping a reasonable monthly payment going forward.
The important part of being in a Chapter 13 case is to communicate with your attorney. The CARES Act passed yesterday, but it’s going to take several months for many to catch-up on payments, especially those who are self-employed or contractors.
This is just a basic overview and is not legal advice specific to your situation. If you have questions about your rights when it comes to debt and credit, you should speak with an attorney in your area for legal advice. If you live in California or North Dakota and would like to speak with Jen Lee Law regarding your situation, please schedule an appointment.
Wanda Larochelle says
I don’t understand the cares act. I filed my Chapter 13 Pro Se and it was confirmed in 2019. I wanted to sell my home and then this Covid hit. The Trustee has tried 5 different times to get our case dismissed even when we were not behind in payments. I filed for a plan modification and extension for another to years that would be 7 in all. We had a hearing on October 23, 2020 and The Trustee said I was wasting the Courts time my plan was not going to work. The 12% interest would be added to the modification and his fees making my payments higher not lower. I’m confused because no where is there direction on this and how much interest this would be added to a confirmed plan. Can someone please explain asking for a modifications and 12% interests and fees consequences? How can it lower my payments with 12% added to every payment?
You likely need to talk to an attorney in your state, as Chapter 13 plans are very different from district to district. The CARES Act does allow for extending a plan to 7 years under certain circumstances, but there are some debts that bankruptcy cannot modify. If you are in California, we can help review options.
**This is not legal advice specific to your situation.**