Covid-19 related CARES Payments could be taken by bankruptcy trustees in active bankruptcy cases.

Litvak Legal Group, PLLC (LitvakLegalGroup.com) continues to follow the news and developments regarding Covid-19 and bankruptcy. As many of you know, the recent CARES stimulus act included some very important bankruptcy-related provisions. First, CARES act excluded all unemployment-related payments from the “income” form means testing purposes. The Act also excluded the payments to individuals and families from the means test as well. We previously reported that the above payments were not explicitly exempted for bankruptcy purposes and unless could be exempted under a specific statute (like a wild-card exemption in states following the federal exemption schemes), it could potential fall to the bankruptcy trustee. The U.S. Trustees Services recently published its opinion on the applicability of the above funds. First, the USTS noted that the above is most likely the “property of the estate” and could be administered by the trustees in pending bankruptcy cases. However, the USTS expressed an opinion that bankruptcy trustees are very unlikely to pursue such a small estate, especially in light of the inevitable large administration expenses. In other words, trustees should not deprive debtors of much needed federal aid, as the funds are of a small significance to the bankruptcy estate. However, many of my colleagues from across the country were quick to point out that there were many instances, where Chapter 7 and 13 trustees were administering bankruptcy estates with just a few hundred dollars in them. It is amazing that such examples of bankruptcy inefficiency exist and seems to be contra the goals and purposes of the bankruptcy law and system.

First, we have not ran into a single trustee in the states and districts of our practice that would administer such a small bankruptcy estate. Of course, we cannot guarantee that none of the Chapter 7 or Chapter 13 trustees would change their mind and start pursuing the CARES payments. After all, there were cases where trustees were pursuing some small unexempted assets, however under a mistaken believe of the true FMV and unexempted equity. Nevertheless, I would caution debtors in pending bankruptcy cases, either to amend their petitions and exempt their CARES related payments or risk a possible turn-over action from their local trustee.

Thank you for turning-in. Be safe and healthy.

 Joe Litvak

LitvakLegalGroup.com

CARES Act payments to individuals and couples along with $500 per child payments are fair game for bankruptcy purposes.

CARES Act payments to individuals and couples along with $500 per child payments are fair game for bankruptcy purposes.

As many of us know under the latest stimulus package called CARES act individuals and married couples are supposed to receive checks of $1,200 to a single taxpayer and $2,400 to a joint filers. In addition to the above, taxpayers can receive up to $500 per qualifying child  they claimed on the last filed tax return. All of the above payments assuming strict income requirement, as reported on the last filed tax return.

Many of the taxpayers currently in bankruptcy or considering bankruptcy protection should be aware that some Chapter 7 and Chapter 13 trustees take a position that the above stimulus payments are nothing but a tax refund and, therefore, are fair game for their interception. Apparently, the issue of exempting the stimulus payments was advocated by the bankruptcy community and specifically rejected by the Congress. Because the Act does not specifically exempts the fund received, it will be up to the discretion of the trustees how to treat them. Many aggressive trusties will surely try to grab the incoming check and payments and despite the underline policy and objective of the CARES act.

If you are debtors in the pending Chapter 7 case,you need to discuss the issue with your attorney as soon as possible. One of the possible solutions is to amend the forms and schedules to include the fund as an asset and specifically exempt it. Thous who have no available exemptions would surely be receive no benefit from the much needed stimulus payment. However, if you were considering filing a Chapter 7 case post March 27, 2020 and have no projected available exemption, you may want to hold your filing and spend your money on essentials.

Just like debtors in Chapter 7 case, if you are in the pending Chapter 13 case, pre-confirmation, you may want to amend your filings and schedules to address the issue of this new "tax refund." However, debtors in the pending post-confirmation cases will most like be at the mercy of the discretion of their respective Chapter 13 trustees.

We will continue monitoring the issue and advising our clients accordingly.

Your truly,
Joe Litvak, Litvak Legal Group, PLLC at LitvakLegalGroup.com