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Are CARES Act Stimulus Payments Considered Income for Bankruptcy?

April 16, 2020
Bankruptcy

The Coronavirus Aid, Relief and Economic Security Act of 2020 (“CARES Act”) was approved by Congress in March 2020 and has provided relief to millions of Americans. One part of this relief is stimulus checks that the government sent to all individuals. The amount of these checks depended on the income of that individual for 2019 (or 2018, if the 2019 taxes were not been filed). In this article, we discuss whether the amount received by way of these stimulus payments is considered income for the purpose of determining eligibility for bankruptcy.

The Importance of Income When Filing a Bankruptcy in Los Angeles

The amount of income that one earns is extremely important for weighing whether one qualifies for bankruptcy, and then determining how much, if anything, has to be paid to creditors.

For the purpose of Chapter 7 bankruptcy filings, income is extremely important because in order to be eligible to file a Chapter 7 bankruptcy, one must be under a certain threshold of income. Being above that threshold can force a debtor to file a Chapter 13 bankruptcy instead.

Income is also very important when filing a Chapter 13 bankruptcy. In order to qualify for a Chapter 13 bankruptcy, one must have some “disposable income” remaining after all monthly expenses are paid. Additionally, the amount of said disposable income is  important in a Chapter 13 bankruptcy, because that could help determine how much money will be paid to creditors, and whether a reorganization plan in a Chapter 13 bankruptcy is even feasible.

The CARES Act Stimulus Payments are Not Considered Income for Bankruptcy Cases in Los Angeles

According to the CARES Act, the one-time payment received by Americans would not be considered income for the purpose of both Chapter 7 bankruptcy cases, and Chapter 13 bankruptcy cases. In Chapter 7 bankruptcy cases, these stimulus payments will be excluded in calculating current monthly income (for the purposes of the “means test” when determining a debtor’s eligibility). With respect to Chapter 13 bankruptcy cases, the stimulus payments will be excluded when determining a debtor’s disposable income. The effect of these provisions is to prevent the stimulus payments from affecting a debtor’s eligibility to file under either chapter. On the same token, the stimulus payments would not be considered “regular income” for the purpose of Chapter 13 bankruptcy cases, and thus, would not be used in calculation of the debtor’s disposable income.

Contact Our Los Angeles Bankruptcy Attorneys to Determine if Your Are Eligible for Bankruptcy

If you are considering bankruptcy but do not know if you are eligible, give us a call now and let’s discuss your small business bankruptcy options. We would be happy to talk to you and provide you with all of your options in confidentiality. Contact a Los Angeles Bankruptcy Attorney now!

Call us now at (310) 444-9444 for a FREE CONSULTATION!

 

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