Are you caught in the economic fallout of the COVID-19 pandemic? Are you thinking about exploring bankruptcy proceedings?

In April 2020, the unemployment rate rose to the highest level since the 1930s. In October, it was still at 6.9 percent.

The Census Bureau’s Household Pulse Survey gathered data between October 28 and November 9, 2020. It found that about one in five adult renters were behind on their rent. The survey estimated that 13.4 million adults live in rental properties.

The survey reported that almost 81 million adults have trouble covering household expenses. Also, about 26 million adults reported not having enough food in the previous seven days.

In response to the pandemic, the U.S. Senate passed the CARES Act to help with the economic impact. This Act also changes some rules related to bankruptcy proceedings. Keep reading to learn about the CARES Act’s role when filing for bankruptcy.

What Is the Coronavirus Aid, Relief, and Economic Security Act (CARES Act)?

The U.S. Senate passed Bill 3548, the CARES Act on March 27, 2020. The focus of this bill is to help Americans with the economic consequences of COVID-19.

It offers fast and direct financial assistance to workers, families, and small businesses. The CARES Act package involved over $2 trillion in relief. The goal is to preserve jobs in American industries.

The Paycheck Protection Program (PPP) gives small businesses resources to meet their payroll. It also helps them re-hire employees they furloughed during the pandemic.

Employers may receive federally guaranteed loans for payroll expenses. The Economic Injury Disaster Loan Program offers assistance to cover the business’ lost revenue.

What to Expect During a Bankruptcy Court Settlement?

If you decide to file for bankruptcy, begin by getting an attorney. This will ensure that you’re properly prepared and receive the best outcome.

Bankruptcy cases undergo review in a Section 341 hearing. While this is a formal legal proceeding, it often doesn’t take place in a courtroom.

The legal team collects and prepares all the relevant documents. This information is then presented under oath. A court-appointed Trustee or Trustee’s representative oversees the hearing.

Be aware that the “court” records everything you say and may use it against you. Thus, it’s key that you’re candid with your attorney and answer all questions truthfully.

The Impact of the CARES Act on Bankruptcy Proceedings

Parts of the CARES Act include changes to the U.S. Bankruptcy Code. The Act alters the restructuring of debt and federal relief program participation.

The Act expands subchapter V of the Bankruptcy Code. This applies to small businesses and sole proprietorships.

These entities can now qualify if their aggregated secured and unsecured debts are less than $7,500,000. Without a Congressional extension, the threshold will revert to the previous $2,725,625 on March 21, 2021.

PPP Loans

Businesses that received PPP loans may receive forgiveness. This often requires that they used 60 percent of the loan to cover payroll expenses.

Some owners haven’t been able to keep their staffing levels or meet the loan forgiveness rules. In this case, you may have the option to file for bankruptcy under the subchapter V expansion.

A PPP loan is an unsecured obligation. This means that the court may grant a repayment plan so that you only pay part of the loan.

The Small Business Administration (SBA) established a temporary rule in April 2020. This denies PPP loans to any business already involved in bankruptcy proceedings.

Yet, the CARES Act doesn’t prevent PPP loans for debtors in bankruptcy cases. Bankruptcy courts have ruled in favor of these debtors. They state that the SBA went beyond its authority when making this rule.

Other Bankruptcy Code CARES Act Changes

The CARES Act made further amendments to the Bankruptcy Code. Historically, a person’s current monthly income determined their eligibility to file bankruptcy. The income rate also affected the repayment period.

COVID-19-related payments can’t be used in calculating your current monthly income. This isn’t considered disposable income as it relates to payments to creditors.

A new Chapter 13 Bankruptcy Code rule addresses plans started before the CARES Act. These plans must be altered if the debtor had financial hardship directly or indirectly related to COVID-19. An example is to extend the plan payment to 84 months from the start date.

Make sure you request changes before the current March 27, 2021 deadline. These modifications may pay for post-confirmation defaults. They may also cover your mortgage or other loan payments.

Items to Take to Your First Bankruptcy Attorney Visit

Being prepared for your first visit with the attorney will move the process along. The following list describes common items needed to prepare for bankruptcy proceedings.

  • Car loan or lease billing statements
  • Collection letters
  • Mortgage statements
  • Other recent bills
  • The wage garnishment order from your payroll office if this applies
  • All court papers if you’re involved in a lawsuit
  • Purchase contract and recent billing statements for car loans
  • All the paycheck stubs or documents of income that you have
  • Documents showing Social Security and pension benefits
  • Tax returns from the past one to two years

When the lawyer has as much information as possible, it helps them prepare and analyze your case. This helps them develop evidence to present a solid case on your behalf.

Do You Need a Bankruptcy Lawyer?

If you’re considering entering into bankruptcy proceedings, it’s key to have an expert at your side. Lorraine M. Greenberg has served as a bankruptcy attorney in Chicago since 1981. You’ll receive quality consumer and small business legal services at affordable prices.

We’re experts in Chapter 7 bankruptcy and Chapter 13 bankruptcy cases in the U.S. Bankruptcy Court for the Northern District of Illinois. We understand that these hard-economic times are difficult for families and small businesses. Our practice wants to help you prevent foreclosures and wage garnishment.

Contact us today to ask questions and schedule a consultation.