Filing for Bankruptcy & Legal Considerations During the COVID-19 Outbreak
Most states in the U.S. have issued stay at home orders or other physical distancing measures to reduce the spread of the coronavirus. Correspondingly, federal bankruptcy courts have modified their operations to help protect public safety. Some courts have closed, but most have reopened with social distancing and other prevention measures or are operating virtually. If you have filed for bankruptcy, but the court in which you filed closes before you complete the process, you will continue to be protected from creditors by the automatic stay. If you have not yet filed, and the court in which you would typically file closes, you may want to consult an attorney to find out whether you can file in a different court.
Bankruptcy courts that remain open may impose additional protocols for entering the courthouse. Courts also may change clerk office hours, service of process rules, and deadlines for filing. Modifications due to COVID-19 vary widely, so you should make sure to check for rules specific to the district and courthouse in which you are filing, as well as any judge who has been assigned to your case.
Changes to Bankruptcy Rules Under the CARES Act
The COVID-19 crisis has resulted in a few temporary changes to substantive bankruptcy rules under the federal Coronavirus Aid, Relief, and Economic Security (CARES) Act and its successor, the Consolidated Appropriations Act of 2021 (CAA). For example, a debtor with a pre-existing Chapter 13 repayment plan potentially can extend the length of their plan to seven years. Obtaining this modification requires notice and a hearing, at which the debtor must show a material financial hardship resulting from the COVID-19 outbreak. Furthermore, a small business debtor may be eligible for an additional 60 days to perform post-petition obligations arising out of the terms of a lease of commercial property if they can show a material financial hardship arising out of COVID-19. Debtors should consult with an attorney on all bankruptcy rules, including temporary rules under the CARES Act and the CAA.
Moreover, stimulus checks and other payments under federal law that are related to the coronavirus will not count as current monthly income for debtors seeking to file under Chapter 7, and these payments will not count as disposable income for debtors seeking to file under Chapter 13. Thus, receiving a stimulus check will not affect your eligibility to file under either Chapter 7 or Chapter 13.
The debt limit for businesses filing for bankruptcy under Subchapter V of Chapter 11 has been substantially increased.
Waiver of Original Signature Requirement
Typically, a bankruptcy attorney must get an original signature (also known as a “wet signature”) from their debtor client on the petition for bankruptcy. This is true even if the documents are filed online. During the COVID-19 outbreak, however, certain bankruptcy courts have decided to waive this requirement. Debtors and their attorneys now can review the bankruptcy paperwork virtually, rather than meeting at the attorney’s office to arrange for a physical signature. Among the first courts to adopt this measure were the District of Kansas, the Central District of Illinois, and the Southern District of Alabama.
Section 341 Meeting of Creditors
Debtors who file for bankruptcy under Chapter 7 or Chapter 13 typically need to attend a meeting of creditors under Section 341 of the Bankruptcy Code. Due to concerns surrounding the COVID-19 outbreak, the U.S. Trustee Program requires that these meetings be conducted by telephone or other forms of remote communication for all bankruptcy cases through the national emergency and for 60 days thereafter. Bankruptcy courts are continuing to modify their procedures for these meetings, and the use of technology may vary depending on the court. You should check the website for the court in which you are filing so that you know what to expect.
