Consumer Bankruptcy and the CARES Act Post COVID-19

It is a fact that COVID-19 have impacted a good deal of homeowners, who are now seeking assistance.

As of April 24, 2020 over 3.4 million homeowners have entered into COVID-19  related mortgage forbearance plans, as per the American Bankruptcy Institute. A significant increase since the last report on April 3, 2020, when the number of homeowners applying for the plan was just over one million.

The landscape of consumer bankruptcy cases had changed with the COVID-19 and the Coronavirus Aid, Relief and Economic Security (CARES) Act, especially with regard to the treatment of mortgage debt. 

Here we share the 10 changes that Creditors should be aware of in Chapter 13 and Chapter 7 cases.

1. COVID-19 relief payments are excluded from the definition of “income.”
   The payments made under federal law related to COVID-19 are not included in the disposable income requirement of confirmation in the Bankruptcy Code and the income calculation for eligibility under Chapter 7.
2. Chapter 13 plans may exceed five years.
   For the Debtors experiencing hardship due to COVID-19. The Chapter 13 Plan confirmed cases before March 27, 2020, may be modified to extend the repayment period up to seven years after the first payment was due under the Chapter 13 Plan after confirmation. Under the Bankruptcy law, Chapter 13 Plans are limited to a length of five years. If a plan is modified from five years to seven years, and a Creditor’s arrearage is paid over those seven years, the Creditor will receive less monthly arrearage payments in the modified plan than under the original confirmed plan. 
3. Second Moratoriums.
   In order to bring cases current, some Chapter 13 Trustees have agreed to consent to second moratoriums and longer time periods, even without the existence of a qualifying hardship under the CARES Act provisions. 
4. Practical changes to Bankruptcy Court procedures. 
   The Chapter 13 Plans in which mortgage payments are paid to the Trustee, instead of directly to the Debtor, are called “Conduit Plans.”  The U.S. Bankruptcy Court for the District of South Carolina Judges Duncan and Waites entered an Operating Order 20-08 setting forth procedures in light of COVID-19. The Order includes a requirement for Debtors to make all mortgage payments to the Trustee on claims secured by a first priority security interest in the Debtor’s principal residence.
   
5. Payment deferments due to COVID-19 in conduit plans. 
   Chapter 13 Creditors, Trustees and Debtors need to together agree upon and seek Court approval for modifications to the Plan due to COVID-19. Creditors should be wise to file a timely Notice of Payment Change if the loan payments due are modified under Bankruptcy Rule 3002.1.
   
6. Payment deferments due to COVID-19 in plans where Debtor is paying mortgage payments directly to the Creditor. 
   Chapter 13 Creditors must agree directly with Debtors upon the loan modification, forbearance, or deferment. Again, Creditors must file a timely Notice of Payment Change pursuant to Rule 3002.1.
   
7.  CARES Act foreclosure relief for federally-backed loans.
   Since March 18, 2020, a servicer of a federally-backed loan may not initiate any foreclosure process, move for a foreclosure judgment, order a sale, or execute a foreclosure-related eviction or foreclosure sale for sixty days. This stay is separated from any state-mandated stay of foreclosures. 
8. CARES Act forbearances. 
   Under the CARES Act borrowers affected by COVID-19, who have federally-backed mortgage loans,  can request a forbearance from mortgage payments for up to 180 days. The Act  provides for separate forbearance rights for owners of multi-family property (five or more units) and provides protection for tenants from eviction if the owner applies for a forbearance.
   
9. CARES Act eviction relief. 
   Since March 27, 2020, a Landlord of a “covered dwelling” may not file an action for eviction or charge additional fees for nonpayment of rent during a 120-day period. A covered dwelling is one where the building is secured by a federally-backed mortgage loan or one that participates in certain federal housing programs. This stay is separate from any state-mandated stay of evictions.
   
10. CARES Act student loan relief. 
    Since March 13, 2010 through September 30, 2020, for covered student loans, the CARES Act suspends payments and waives interest.  Many Chapter 13 Plans provide for the Debtor making student loan payments outside the Plan, so the CARES Act relief is vital to Chapter 13 Debtors, because a moratorium or deferment in the Plan would not affect those payments owed outside of the Plan. 

Experiencing financial hardship due to COVI-19, or just have questions about bankruptcy please contact us. We at  Adams Law handle chapter 13 bankruptcy and are proud to say that our firm has helped many in our community throughout the process. Contact us for a free consultation and to get more information on how we can help you file chapter 13 bankruptcy.