The Covid-19 pandemic of 2020 has changed the way all Americans live, work and interact. For many Chapter 13 Debtors, the resultant shutdowns early in the pandemic ( February through May, 2020) affected their ability to make both household and Chapter 13 Plan payments. On March 27, 2020, the President signed the CARES Act into law ( Pub. L. 116-126, 134 Stat. 281. The CARES Act amended Section 1329 of the Bankruptcy Code (11 U.S.C. 1329), which covers amendments of confirmed Chapter 13 Plans.
The amendment to 1329 under the CARES Act provides additional relief for Chapter 13 Debtors with a Chapter 13 Plan CONFIRMED prior to the enactment of the statute ( March 27, 2020). In applicable cases, the Confirmed Chapter 13 Plan may be amended to reduce the Plan payments and extend the total length of the Plan to up to Seven ( 7 ) years from the filing date of the initial Voluntary Petition ( the filing date). In all other cases, a Chapter 13 Plan can only run a maximum period of Five (5 ) years from the date of the filing of the initial Voluntary Petition.
The requirements for a CARES Act modification of a Chapter 13 Plan confirmed before March 27, 2020 are as follows:
- The Debtor(s) is/are experiencing or has/have experienced a material financial hardship due, directly or indirectly, to the coronavirus disease (COVID-19) pandemic; and,
- The modification of the Plan is approved after notice and a hearing.
In the case In re Consoella Randolph Fowler / In re Anbrial Alexis Lewis (2020 WL 6701366,
Nov. 13, 2020), Judge William Sawyer of the U.S. Bankruptcy Court for the Middle District of Alabama held that even though the Debtor Ms. Fowler received only Social Security income, she was still “indirectly” affected by the COVID-19 pandemic, due to her having to make expenditures to care for family members who contracted the virus. These “expenditures” were held by the Court to constitute an indirect hardship on the Debtor. In the case of the other Debtor Ms. Lewis, her loss of employment hours due to her employer’s COVID-19 related shutdown was held to be a direct financial hardship justifying a modification of her Plan to 84 months with a payment reduction. The Court rejected the Chapter 13 Trustee’s argument that pre-COVID-19 defaults by the Debtor would disqualify a CARES Act modification of the Plan if the foregoing factors were alleged successfully by the Debtor ( being indirectly or directly affected by the COVID-19 pandemic). The fact that the Debtor is in arrears with regard to Plan payments at the time of a CARES Act motion to modify the Plan was held by the Court to be irrelevant.
In summary, it is important for any Chapter 13 Debtor in a Plan confirmed prior to March 27, 2020 to consider requesting a Plan modification under the CARES Act. Perhaps at no time in the history of Chapter 13 case law has there been an easier standard to meet to get a reduction in Plan payments. The extension of a Plan to 84 months ( 7 years) does not result in any extra funds going to creditors, and can serve as a lifeline to people who have been harmed by COVID-19 related health issues or loss of employment or hours of employment.