Implications of the CARES Act in Bankruptcy

 In Bankruptcy

On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (CARES Act) was enacted. The CARES Act will have many implications for those who have already filed for bankruptcy and for those who are contemplating filing for bankruptcy. For example, most people will receive a stimulus check from the government. Individual tax filers with adjusted gross income (AGI) up to $75,0000 or $150,000 for married couples filing joint returns will receive the full payment of $1,200 per person and $500 per qualifying child. The payment is reduced as the AGI increases and it’s phased out for those whose income exceeds $99,000 or $198,000 for joint filers with no children. People on social security disability and VA disability will not need to file taxes to receive the stimulus check. Under the CARES Act, and in bankruptcy, the stimulus money will not be counted toward current monthly income and it will not be counted toward disposable monthly income. The CARES Act does not state whether or not the stimulus money will be an exempt asset. Also, any COVID-19 related payment relief should not have an impact on a person’s credit score.

Another important aspect of the CARES Act for those contemplating filing for bankruptcy is the pause on foreclosures. Federally backed mortgage lenders are not allowed to foreclose within 60 days of March 18, 2020. Forbearances are allowed for up to 180 days at the borrower’s request and can be extended for an additional 180 days at the borrower’s request. The request does not have to be in writing. Fees, interest and penalties will not accrue while the mortgage is in forbearance. On a similar note, Federal student loans will waive 2 months of payments and interest if requested.

The CARES Act is also making it easier for people to access retirement accounts. An individual can withdraw up to $100,000 without the 10% penalty if the withdrawal is a result of the virus for 180 days after March 27, 2020. Also, an individual is not required to take the minimum distribution for retirement funds.

Unemployment insurance (UI) is supplemented by $600 per week and an additional 13 weeks were added to the state rules. If you receive UI bc of COVID-19, you do not need to look for other work. COVID-19 related unemployment benefits are exempt in Colorado.  Pandemic unemployment assistance is available to freelancers, the self-employed and independent contractors for 39 weeks. It expires on December 31, 2020.

Some of the provisions under the CARES Act may make it easier for a person to file for bankruptcy and some of the provisions may help a person avoid bankruptcy altogether. If you have questions about whether to file for bankruptcy, call the Law Office of Diane K. Bross.

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