COVID-19: Developing a Financial Reorganization Strategy

In response to the COVID-19 pandemic, President Trump signed the CARES Act which provides both non-bankruptcy and bankruptcy relief to individuals and small businesses. Governor Whitmer has also enacted several Executive Orders which provide additional non-bankruptcy relief. These Relief Provisions include: Economic Impact Payments, Mortgage Foreclosure & Eviction Forbearance, Assistance for Confirmed Chapter 13 Plans experiencing “Material Financial Hardship,” Federal Student Loans and Small Business Assistance. 

1.         Economic Impact Payments include the $1,200 per adult and $500 per child payments which are excluded from the definition of “income” for eligibility purposes and are exempt from the “means test.” 

2.         Mortgage Foreclosure Forbearance is available to anyone affected by COVID-19 who has a federally backed mortgage. You can apply for forbearance for up to six months, with a possible extension of up to an additional six months. Each mortgage servicer has their own procedure and rules for dealing with the deferred payment arrangement. HUD announced it will not initiate or complete reverse-mortgage foreclosures for single-family homeowners with FHA-insured mortgages.

3.         Assistance for Confirmed Chapter 13 Plans with “Material Financial Hardship” is available thanks to Trustee Tom McDonald and the Act. The Trustee was instrumental in developing a motion procedure for Chapter 13 debtors to suspend payments. Subsequently, under the Act, you can modify your plan for a term of up to seven years.

4.         Federal Student Loan payments and the accrual of interest are both deferred under the Act. 

5.         Small Business Assistance that was provided under the Small Business Reorganization Act of 2019 was temporarily modified. Under the CARES Act, the debt threshold for filing under the new Subchapter V of Chapter 11 Bankruptcy increased from $2,725,625 to $7,500,000.  Among other benefits, Subchapter V enables small businesses to reorganize their finances more simply and affordably than a traditional Chapter 11 case. 

Developing Your Financial Strategy

No one wants to file for bankruptcy, however, a well-planned financial restructuring plan can give you and your family peace of mind and hope for future financial stability. 

Consumer Bankruptcy options include both Chapter 7 and Chapter 13 cases. In addition to the automatic stay – which would stop any foreclosure, repossession, garnishment or “shut off” actions - and the discharge of unsecure debts, both chapters protect your qualified retirement funds and allow you to keep the property you need to work and live. In most cases, you are entitled to keep all the property you own. 

Chapter 7 takes approximately 4 months to complete and typically addresses credit cards, medical bills and other unsecured debt. A Chapter 13 plan is proposed for 3 to 5 years and is primarily designed to address secured debts including mortgages and auto loans through modifications, as well as income tax issues, domestic support obligations and student loans – both federal and private. 

If you have questions relating to your financial situation, please talk to a qualified attorney. A well-planned financial strategy will give both you and your family peace of mind during these turbulent times.

Mike Shovan has been practicing law in the Saginaw area for over 30 years. He has spent most of that time counseling and strategically co-ordinating financial plans for people including Bankruptcy as well as Trusts & Estates. You can contact his office via phone or text at (989) 847-6030 with any questions or to schedule a free consultation.