Under the Cares Act, passed recently in the stimulus, chapter 13 debtors received a welcome respite if they are unable to make payments during the Covid-19 crisis.
Debtors have up to 84 months or an additional 2 years to extend their plan if necessary. This provision expires in 1 year.
Debtors also have the option to suspend payments if necessary.
Debtors have to file motions along with proof that the Covid-19 crisis has caused a change in the income and made it impossible to make the plan payments.
Staying in a plan for 7 years is helpful because it could lower your payments by giving you additional time to pay.
On the other hand, that is two more years in the plan. Two more years of the trustee taking your income tax refunds if it is in your plan. If you do not receive a refund then it is not an issue, but if you get substantial refunds it is a significant trade-off.
A suspension of payments does the same in extending the time it takes to complete your plan because the debtor takes a break from making payments and picks up after a period fo time. For example, a debtor can move to suspend payments on month 36 of a five-year plan. The suspension last six months. The debtor starts month 37 of the plan when the next payment is made. Therefore, the debtor is in bankruptcy six months longer.
For some debtors, the disruption will be temporary and therefore conserving resources by skipping or lowering payments until the economy if open again is beneficial.
Each debtor is advised to evaluate his or her case carefully and determine what works best for them.
