What about my coronavirus stimulus check and bankruptcy?

Posted by Wesley Scott on April 21, 2020 at 12:26 PM
Wesley Scott

On March 27, 2020, Congress passed, and the President signed into law the CARES Act, designed by Congress to address the pressing financial concerns facing Americans in light of the  Coronavirus pandemic.

The most notable feature is the stimulus payment that Congress authorized to be sent to eligible people.  The payment is an advance on 2020 tax credits.  The qualification and amount of this payment is income-based and it phases out for upper income individuals.  But for those who are eligible, the check can be as much as $1200 for adult taxpayers and up to $500 for the taxpayers’ dependents.

The CARES Act also contains provisions that impact bankruptcy law.  First, the stimulus checks paid are not to be considered as income for the purposes of the bankruptcy means test.  Second, just as is the case with social security and veterans benefits, the stimulus check is not seen as disposable income for individuals in a chapter 13 case – so unlike the typical tax refund, the chapter 13 trustee does not have the ability to ask chapter 13 debtors to pay in part or all of the stimulus check.  So the stimulus payment is a neutral event in terms of setting the terms of a bankruptcy and the administration of a bankruptcy estate.

But that does not mean that the payments are absolutely protected.  There is no clear consensus – and no clarity offered in the statute  as to whether the  right to receive the stimulus check is property of the bankruptcy estate.  For individuals about to file a bankruptcy case who are opting to use the exemptions contained in the Bankruptcy Code, most stimulus checks can be exempted At under the 522(d)(5) “wild card.”  However, for those opting to use non-bankruptcy law to protect their property, there is no specific provision in Minnesota Statutes that would allow a debtor to specifically protect their stimulus check.  Perhaps the best option would be to use the Minnesota Statute to exempts relief based on need payments, but that is not clear-cut.  So the best advice to chapter 7 filers might be to wait to receive the stimulus check, spend down the check meeting basic needs and then file their bankruptcy case.

What’s the right thing to do with your stimulus payment?  The experienced attorneys at Kain & Scott can help you make the right decision. See us at www.kainscott.com. You will be glad you did.

 

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