Congress enacted the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) on March 27, 2020. This week, as part of that aid package, millions of Americans began receiving “stimulus” payments (officially called “economic impact payments”) from the IRS. These payments range from $1,200 for individuals to $2,400 for married couples (filing joint tax returns), with additional amounts paid per dependent.
Given the current state of the economy, many Americans might find themselves with mounting debt and little income. While these stimulus payments are welcome and will certainly help, they may not be enough. Bankruptcy can provide relief from debt, but debtors might wonder whether their stimulus payments will make them ineligible to file for Chapter 7 bankruptcy.
The answer, fortunately, is no. Under the CARES Act, Congress specified that stimulus payments are not included when determining a debtor’s eligibility for Chapter 7 bankruptcy. So, only your income from other sources, including wages from a job and unemployment compensation, will be included in determining whether an individual is eligible for Chapter 7 bankruptcy.
Another question that may arise is whether debtors can keep their stimulus payments if a debtor chooses to file a Chapter 7 bankruptcy. Ordinarily, money that you are entitled to receive in the future (like a tax refund) can be pulled into the bankruptcy estate by the trustee and used to pay your creditors. Unlike the first question, Congress did not specifically address this problem. However, the U.S. Trustee (part of the Justice Department) issued a notice to trustees everywhere that the government does not expect them to use debtors’ stimulus payments in this way. While this is not a binding position in all bankruptcies, it provides valuable insight into how trustees will treat stimulus payments.
To learn whether bankruptcy might be right for you, please contact McNeelyLaw’s bankruptcy attorneys by visiting www.mcneelylaw.com or calling our office at 317-825-5110.
This McNeelyLaw LLP publication should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult your own lawyer on any specific legal questions you may have concerning your situation.