How the Covid-19 CARES Act Affects Bankruptcy

CARES ACT

Last week the president officially signed the CARES Act into law. The CARES Act, short for Coronavirus Aid, Relief and Economic Security Act, includes many provisions that affect bankruptcy cases. It also addresses bankruptcy payment plan modifications and federally backed residential mortgage loans and foreclosures and evictions.

The following questions and answers will help you determine how the CARES Act could affect you:

Should I File for Bankruptcy If I Can’t Afford My Mortgage Payments because of Covid-19?

Not necessarily.

If you were considering bankruptcy and struggling with mortgage payments before the enactment of the CARES Act, you should know that foreclosure proceedings have been temporarily halted and no new proceedings can begin on federally backed mortgage loans. This “grace period” will extend at least into mid-May.

The CARES Act also requires lenders to grant borrowers up to 180 days of forbearance if requested. They must prove that they are experiencing financial challenges directly or indirectly caused by Covid-19. An additional 180 days could be available if problems continue.

Mortgage lenders are also forbidden under the act to charge fees, penalties, or interest beyond what would have been due had payments been made on time.

Federally backed multi-family mortgage loans for landlords are eligible for up to 30 days of forbearance with the possibility of two extensions beyond the initial 30 days. Landlords granted forbearance cannot initiate eviction proceedings for non-payment of rent, nor can they charge late fees or penalties during the forbearance period.

Bankruptcy is still an option during the crisis, but with the aid offered by the CARES Act, it might be possible to postpone filing due to the inability to pay your mortgage or rent.

What If I’m Unable to Afford My Chapter 13 Bankruptcy Payments because of Covid-19?

Some trustees delayed payment obligations, but now under the CARES Act, you are officially eligible to modify what you owe.

Chapter 13 repayment terms can be modified by as much as seven years.

Should I File for Bankruptcy Because I Had to Shut Down My Business because of Covid-19?

The simplest answer to this is “maybe,” but there are many things to consider before you proceed.

The federal government, as well as some state governments, are extending financial support to small businesses. Before any business owner decides to pursue Chapter 7 or Chapter 11 relief, they should exhaust all other opportunities to keep their business solvent and alive. (The same is true for personal bankruptcy.)

Rarely is bankruptcy the first option people turn to when experiencing financial hardship. Covid-19 has done nothing to change that. But the pandemic might have hastened the process for many who were headed toward filing anyway.

Luckily, despite courts across the country being closed for in-person business, it is still possible to file for bankruptcy. The process might take a bit longer than usual, but filing can offer immediate financial relief from debt collection, even if it takes some time to arrange Chapter 13 bankruptcy payments or receive a discharge of your debts in Chapter 7.

The best thing you can do is contact a bankruptcy attorney for help with answers to your questions. He or she can guide you toward the best decision based on your circumstances. For more information or to learn how the CARES Act and Covid-19 are affecting bankruptcy, contact the bankruptcy Law Office of Robert M. Geller at 813-254-5696.