Due to the nationwide shutdown of nonessential businesses and government-ordered quarantines, individuals and business owners throughout the country have suffered severe and unexpected financial hardship. To reduce the strain on Americans, Congress passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which includes several relief packages. The most well-known form of relief is the stimulus check.
The stimulus check provides up to $1,200 per adult individual and $500 per dependent child. If you’re eligible for this check, it could help you make ends meet in the coming weeks—but what if you were already struggling with financial issues before COVID-19? What if you were considering—or already filing—bankruptcy?
Fortunately, the short answer is that bankruptcy itself won’t jeopardize your stimulus check. The following is a breakdown of when your check is (and is not) safe from your creditors and the government.
Bankruptcy Provisions in the CARES Act
Congress anticipated that people in debt would immediately lose their stimulus checks if the CARES Act didn’t protect it. As such, the CARES Act includes several temporary adjustments to the Bankruptcy Code.
Per the CARES Act, you do not need to include your stimulus check in either the Chapter 7 means test or Chapter 13 disposable income calculations. The Chapter 7 means test assesses your income to determine whether you qualify for this type of bankruptcy, and Chapter 13 disposable income calculations determine the size of your monthly payment to creditors. Because the stimulus check is exempt from both assessments, you can safely use the money without worrying about how it could affect your case.
But what about the Chapter 7 liquidation process? Is your stimulus check part of the “bankruptcy estate?”
While stimulus checks are not explicitly exempt from liquidation, the Trustee for your case would need to notify the U.S. Trustee before taking your check. Losing your stimulus check to your Trustee during the pandemic is highly unlikely, but you should seek qualified legal support for case-specific information.
To clear up a few other common misconceptions, your stimulus check:
- Is not taxable;
- Will not need to be paid back;
- Will not be deducted from your future tax refund; and
- Cannot be seized to cover tax debt or federal student loan debt.
Another reason why your check is safe during bankruptcy is the automatic stay. The automatic stay prohibits creditors from collecting debt. Prohibited collection actions include calls, letters, and lawsuits, the last of which could normally result in foreclosure or wage garnishment.
When Could You Lose Your Stimulus Check?
Your check is largely safe during bankruptcy, but some situations and certain types of outstanding debt could jeopardize the federal payment.
You may lose your stimulus check if you owe:
- Child support
- Bank fees (i.e. from an overdrawn account)
- Private debt (if your creditor has already obtained a court judgment against you)
If a creditor obtained a judgment against you before the CARES Act, a resulting bank levy could jeopardize your stimulus check. If a creditor files a lawsuit against you, bankruptcy could be a solution that prevents or freezes garnishment.
Let Nguyen Law Group Address Your Concerns
Every person’s situation is different, which is why general recommendations can never measure up to personalized counsel from a qualified attorney. At Nguyen Law Group, we are helping individuals and families navigate legal and financial issues during the COVID-19 pandemic. Many organizations and businesses have shut down because of the global crisis, but you can count on us to support you when you need us most.