Chapter 13 Bankruptcy and the Coronavirus: What You Should Know

Personal bankruptcy is a complicated process, and it can vary widely depending upon whether a person files for Chapter 7 bankruptcy or Chapter 13 bankruptcy. In some cases where an individual consumer is ineligible for both Chapter 7 and Chapter 13 bankruptcy, that person may need to turn to Chapter 11 bankruptcy in order to get relief. We have discussed some of the shifts in personal bankruptcy cases that have occurred as a result of the COVID-19 emergency, and we have discussed the bigger overall picture of how coronavirus relief options, as well as debt issues, have changed the way in which consumers are filing for bankruptcy or are seeking to revise their bankruptcy plans. We want to focus on Chapter 13 bankruptcy cases today in relation to COVID-19. The following are key things to know about your Chapter 13 case and the coronavirus pandemic.

Your Chapter 13 Repayment Plan Can Last Longer Than Five Years
In a typical Chapter 13 bankruptcy case, the debtor develops a repayment plan that usually lasts anywhere from three to five years. After the period of the repayment plan comes up, if the debtor has made all of the payments according to the terms of the repayment plan, then the debtor can be eligible to have all remaining debts discharged (assuming that the remaining debts are dischargeable). To be clear, while some Chapter 13 plans have a repayment period of less than five years, five years is the maximum amount of time under the U.S. Bankruptcy Code. With hardships arising for debtors as a result of the COVID-19 emergency, however, this time limit has been modified.

If you filed for Chapter 13 bankruptcy and had your repayment plan confirmed prior to March 27, 2020, you may be eligible to have the repayment period extended to seven years under the CARES Act. By extending the terms of the repayment plan, you will have lower monthly payments than what you would have had under the original terms of the plan.

CARES Act Allows Modifications for Direct and Indirect Hardships Related to COVID-19
Beyond extending the terms of a Chapter 13 repayment plan for up to seven years, the CARES Act also allows Chapter 13 debtors to seek modifications of their plan if the debtor has suffered a “material financial hardship” that is “directly or indirectly” related to the coronavirus pandemic. The CARES Act does not expressly state how a “direct” or “indirect” material financial hardship is defined, and it will be up to bankruptcy courts to decide. In general, the allowances for modifications appear to be relatively broad, and may permit many Chapter 13 debtors to modify their plans.

You Can Still Convert to Chapter 7 Bankruptcy
If you are concerned about being able to make any type of Chapter 13 payments during and after the pandemic—even modified ones with an extended repayment plan timeline—you may be eligible to convert your case to a Chapter 7 bankruptcy. Even though the CARES Act has made it easier for debtors to maintain their Chapter 13 repayment plan, the Act does not prevent a debtor from converting a case from Chapter 13 to Chapter 7. You should speak with a bankruptcy lawyer about how this process works.

Contact an Oak Park Bankruptcy Attorney
If you need assistance with your Chapter 13 bankruptcy case during the COVID-19 emergency, one of the dedicated Oak Park bankruptcy lawyers at our firm can assist you. Contact the Emerson Law Firm for more information.


See Related Blog Posts:

How Do I File for Consumer Bankruptcy During the COVID-19 Emergency?

What is a Common Chapter 7 Bankruptcy Timeline?

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