As a result of the Covid-19 pandemic, the United States government has recently passed several laws impacting both bankruptcy and consumer debt collections generally. Some of the most noteworthy ones are the following:
1 – Covid Stimulus Payments Are Not Property Of The Estate In A Bankruptcy Case.
Whenever a bankruptcy case is filed, all property owned by a debtor becomes property of the bankruptcy estate, with few exceptions. In 2020, the CARES Act contained a provision confirming that covid stimulus payments are not property of the estate, which means they should be protected from creditors inside a bankruptcy case. This provision was recently extended through December 27, 2021.
However, the legislation does not explicitly prohibit debt collectors from seeking to attach or garnish stimulus payment outside of the bankruptcy context. In 2020, though, the Massachusetts Attorney General issued a guidance that such payments should be deemed “public assistance” which is otherwise protected from creditors in Massachusetts.
2 – Covid-Related Mortgage Forbearance In A Pending Chapter 13
Among other things, the CARES Act provided many homeowners with an opportunity to temporarily pause or reduce payments due to an impact from Covid-19. If you’ve done this while in an ongoing Chapter 13 bankruptcy case, your mortgage servicer is permitted to file an updated proof of claim in the case in order to include this forbearance amount in your ongoing plan payments.
3 – Extended Chapter 13 Plans
Normally the maximum length of a Chapter 13 plan is 5 years. However, if you had a Chapter 13 case that was confirmed before March 27, 2021, and you’ve experienced a Covid-related hardship, then you might be permitted to extend your plan term for up to 7 years. This might be very helpful to deal with past due amounts from a Covid Forbearance and/or if you needed to reduce your monthly payments due to a loss of income.
4 – Tax Consequences for Forgiven Mortgage and Student Loans Debts
The American Rescue Plan Act signed in 2021 contained some exceptions to the traditional rules for debt forgiveness. Normally, if a creditor forgives more than $600 in debt, then the creditor is usually required to issue a 1099-C reflecting cancellation of debt income to the consumer, which can result in tax consequences for debt forgiveness. The 2021 law, however, exempts debts forgiven relating to a mortgage on a residential property, as well as student loans (including both federal and most private loans).
5 – Dealing With Covid-Related Forbearance Payments
One item left out of the federal laws, however, is a clear way for homeowners to resolve the past due amounts once any Covid-related forbearance ends. Some homeowners will have up to a full year of missed payments to resolve. Most homeowners will likely be presented with an option to repay the past due amounts over a long-term structured payment plan, or will be asked to apply for a loan modification. The Massachusetts state legislature in 2020 passed a law that would require some forbearance amounts to be added as a balloon payment due at the end of the mortgage, but its currently unclear on what loans that will apply to, and whether that law will be enforceable. If none of these options work for you, then a Chapter 13 might also be a viable option to extend the repayment term for the past due amount over a maximum of five years.
Brine Consumer Law is Worcester’s only law firm exclusively dedicated to fighting consumer debt in all three key areas: bankruptcy, debt defense lawsuits, and collection violations. Helping people fight debt and debt-related problems is all we do. Contact us today to discuss your options.