How The CARES Act May Affect Your Finances As A Result Of The COVID-19 (Coronavirus) Pandemic

There is a lot happening in society right now as we react to the coronavirus pandemic. I hope that as you read this you are safe and well. Many people are finding themselves with lost or reduced income as a result of stay at home orders. On March 27, 2020, the U.S. government passed a stimulus plan that included (among other things) stimulus payments, relief for Debtors in active Chapter 13 bankruptcy cases, emergency small business loans and temporary federal student loan relief. For more information you can read the text of the Coronavirus Aid, Relief and Economy Security (CARES) Act. Everyone is working hard to understand and implement new procedures as a result of these changes in the law. Before making any decisions or completing any agreements or applications, contact a professional for advice.
Before discussing the above provisions of the CARES Act, I want to discuss requesting to skip payments on your mortgage, auto loan or credit cards.

Requesting Mortgage Forbearance
(Or Auto Loan Or Credit Card)

You have probably seen stories in the news, social media posts about deferring payments on your credit cards, auto loan or mortgage. You may have received a letter from your lender offering assistance due to the COVID-19 pandemic. Before skipping any payments or agreeing to a forbearance agreement, you should get the deal in writing and read the agreement carefully.
A colleague recently reviewed a coronavirus mortgage forbearance agreement for their client. The agreement contained a paragraph about repayment. Below is reproduction (using a monthly mortgage payment of $2,000):

PaymentDue DateAmount
First Payment04/01/2020$0.00
Payment 205/01/2020$0.00
Payment 306/01/2020$0.00
Balloon Payment07/01/2020$8,000

Under this agreement, in July all the payments you skipped are now due in full. And if you are unable to pay the $8,000, you are now behind on your mortgage. The lender will charge late fees, missed payment fees. The lender may even put your loan into their foreclosure process. These types of forbearance agreements caused a lot of people to have to file Chapter 13 bankruptcy after Hurricane Harvey to save their homes because they were note able to pay the balloon payment. This type of agreement does not provide relief from the coronavirus pandemic homeowner’s think they are getting.
If you find yourself needing to skip payments on credit cards, auto loans, mortgages, rent or any other kind of debt or contract, read any agreement carefully and consider consulting an attorney before signing anything or skipping any payments. If you skip payments while agreeing to a balloon payment, if you are unable to make the balloon payment you may end up facing foreclosure, repossession, or getting sued for the unpaid debt.

COVID-19 Stimulus Checks

The government will issue stimulus checks based on your 2018 or 2019 tax return. Eligible taxpayers will receive $1,200 if filing as single or $2,400 if filing jointly. Parents will also receive $500 for each qualifying child. Individual filers making up to $75,000 will receive the full payment. Joint filers making up to $150,000 will receive the full payment.
Under the CARES Act, these checks will not be counted as income for purposes of a Chapter 7 bankruptcy or for purposes of a Chapter 13 bankruptcy. For more information about the checks, you can read the details on the IRS’ website.

Chapter 13 Relief
(Extension Of Chapter 13 Confirmed Bankruptcy Plans)

Under the Bankruptcy Code, the maximum term for a Chapter 13 Bankruptcy Plan is 60 months (five years). Under the CARES Act, the Bankruptcy Code has been amended to allow Chapter 13 Bankruptcy Plans to be extended up to 84 months (seven years).
This relief is available to Chapter 13 Debtors who experience a ‘material financial hardship’ due ‘directly or indirectly’ to the COVID-19 pandemic. Some of the relevant information:

  • This relief only applies to Chapter 13 bankruptcy plans confirmed prior to 3/27/2020.
  • Approval of the modification must be granted before March 27, 2021.
  • The modification may allow for extension up to 84 months from the first plan date.

The implementation, forms, and procedures for requesting the relief afforded to Chapter 13 debtors under the CARES Act may vary from judicial district to judicial district.
If you have questions about how the CARES Act may provide relief in your Chapter 13 bankruptcy you should contact your attorney for more information.

Business Loans

The CARES Act included funds for small business loans. There are two types of loans: Economic Injury Disaster Loans (EIDL) and Paycheck Protection Loans (PPP).
The EIDL loan provides for up to $2,000,000 for small businesses with needs such as servicing debt and payroll. When applying for an EIDL loan, a $10,000 grant can be requested for working capital.
The PPP loan provides for up to $10,000,000 for small businesses. The loan applications are through SBA certified lenders and applications opened on 4/3/2020. The portion of the loan used for expenses for the first 8 weeks may be forgivable
For application and term details, you can find more information on the SBA website.

Student Loans

Relief has also been provided for those who have federal student loans. Through 9/30/2020, no payments are due and interest has been reduced to 0%. Automated payments, such as bank drafts, will be suspended. If you continue to make payments during this period they will be accepted and applied to your loan.
Collection activities have also been suspend during this period. This includes suspension of non-judicial wage garnishment, tax offsets and garnishment of federal benefits (such as Social Security and VA). More information is available on the U.S. Department of Education’s Website. Information explaining how these changes affect income based repayment plans (IBR) and federal student loan forgiveness programs is available from the U.S. Department of Education.
The information contained in this blog is for general information and educational purposes and is not legal advice. Reading these posts does not create an attorney/client relationship.