The Impact of the CARES Act on Chapter 13 Cases

The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was signed into law on Friday, March 27, 2020 and includes provisions that may have an effect on debtors and creditors in chapter 13 cases.

Bankruptcy-Specific Provisions:

Payments the federal government will make to individuals under the CARES Act (the well-publicized $1,200/$2,400+ direct payments) are not counted as income for bankruptcy purposes.  Debtors in chapter 13 cases can keep the money.

Section 1329 of the Bankruptcy Code relating to modification of plans after confirmation has been amended to add a new subsection (d).  I have decided to skip the soundbite and set forth the actual statutory language as follows:

(d)(1) Subject to paragraph (3), for a plan confirmed prior to the date of enactment of this subsection, the plan may be modified upon the request of the debtor if-

(A) the debtor is experiencing or has experienced a material financial hardship due, directly or indirectly, to the coronavirus disease 2019 (COVID-19) pandemic; and

(B) the modification is approved after notice and a hearing.

(2) A plan modified under paragraph (1) may not provide for payments over a period that expires more than 7 years after the time that the first payment under the original confirmed plan was due.

(3) Sections 1322(a), 1322(b), 1323(c), and the requirements of section 1325(a) shall apply to any modification under paragraph (1).

These bankruptcy provisions will disappear one year after enactment based on a sunset clause in the Act.

Other CARES Act Provisions of Interest:

It has been reported that the CARES Act provides for a waiver of the 10% penalty for taking early distributions from qualified retirement plans during 2020 for conronavirus-related purposes.  I fear we will see some chapter 13 debtors taking a withdrawal from their 401k plan in order to pay off their chapter 13 case even though it may not be the best move for them in the long-run.  Debtors attorneys, please remind your clients to consult with you (and tax advisors) before they take such drastic action, especially if the proposed plan payoff is because of a short-term loss of income.  A plan modification under new section 1329(d) may be a better option.

Unemployment benefits are expanded under the CARES Act.  Eligible workers may be entitled to additional benefits over a longer period of time.  In addition, people who are self-employed, independent contractors, or “gig economy” workers may qualify to receive unemployment benefits.  Debtors’ attorneys, don’t file a motion to suspend plan payments because your client says “unemployment is running out.”  Find out whether additional benefits might be available.

There may be some limited relief relating to certain types of federal student loans.  Some payments are suspended on certain non-defaulted Direct Loans and Federal Family Education Loans (FFEL loans) currently owned by the U.S. Department of Education, and interest is not supposed to accrue on those suspended payments.  For more information, read this article by the National Consumer Law Center’s Student Loan Borrower Assistance Project at

The CARES Act provides some foreclosure relief for federally-backed mortgage loans and allows homeowners to request forbearance from mortgage payments.  More information is available from the National Consumer Law Center at  The article also references state-ordered moratoriums on evictions, foreclosures, other collection activity, and utility terminations.

Creditors’ attorneys need to be aware of the restrictions imposed by the CARES Act and applicable state law, just as debtors’ attorneys need to be aware of the protections afforded their clients.




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