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