WILL I LOSE MY STIMULUS CHECK IF I FILE BANKRUPTCY?

The short answer is, “No, you’ll almost certainly get to keep the money if you have a good attorney.” After all, that’s what we do – find the loopholes and use them to your benefit. The long answer is a little more complex. First, the CARES Act makes it clear that the stimulus check can’t be counted toward income in a bankruptcy. Therefore, if you’re an existing Chapter 13 client, the Chapter 13 Trustee can’t demand that you turn the money over. The Eastern District of Kentucky Trustee says so in her blog. Because the CARES stimulus check is not a part of your income, it can’t prevent you from filing a Chapter 7. Further, it can’t increase your disposable monthly income (DMI), which is one of the factors that sets your Chapter 13 payment.

The bigger problem is that nothing in the CARES Act says the stimulus payment can’t be property of the bankruptcy estate. It doesn’t say it can be, either. Instead, it’s silent. The “bankruptcy estate” is made up of all your assets on the date you file, include payments you expect to get shortly after filing even if you haven’t gotten them yet. If you filed bankruptcy before March 27, 2020, you don’t have a problem. You can’t expect to get a payment because of a law that didn’t exist yet. But if you filed on that date or after, that’s where things get troubling. The U.S. Trustee Program has explicitly told Trustees that “Regardless of whether the rebate is property of the estate, the United States Trustee expects that it is highly unlikely that the trustee would administer the payment after consideration of all relevant circumstances….” The word “administer” in that sentence means “take the payment away from the person filing bankruptcy”. That’s a strong statement and the underlining is in the original document. But it doesn’t outright prohibit a Trustee from taking the cash and some Trustees are more aggressive than others. Therefore, your best bet to keep the money is to make sure you exempt it. In most states and for those in which federal exemptions apply, that means using your precious Wildcard Exemption, which is used for everything from the cash you have in the bank to your second car. Artfully using the rest of your exemptions to keep as much Wildcard available as possible is essential, and that’s often where great attorneys are separated from those that shouldn’t be dabbling in bankruptcy law.

If you’re a DIY bankruptcy filer – which I don’t recommend – the actual language of the portion of the CARES Act that lays the foundation for all this is printed below. If you have other questions or know someone that needs to file bankruptcy right now, our doors are (virtually) open and we’re getting things filed quickly using Zoom, Google Duo, and the old fashioned fax and telephone. Good luck out there!

SEC. 1113. BANKRUPTCY.

(a) Small Business Debtor Reorganization.—

(1) IN GENERAL.—Section 1182(1) of title 11, United States Code, is amended to read as follows:

“(1) DEBTOR.—The term ‘debtor’—

“(A) subject to subparagraph (B), means a person engaged in commercial or business activities (including any affiliate of such person that is also a debtor under this title and excluding a person whose primary activity is the business of owning single asset real estate) that has aggregate noncontingent liquidated secured and unsecured debts as of the date of the filing of the petition or the date of the order for relief in an amount not more than $7,500,000 (excluding debts owed to 1 or more affiliates or insiders) not less than 50 percent of which arose from the commercial or business activities of the debtor; and

“(B) does not include—

“(i) any member of a group of affiliated debtors that has aggregate noncontingent liquidated secured and unsecured debts in an amount greater than $7,500,000 (excluding debt owed to 1 or more affiliates or insiders);

“(ii) any debtor that is a corporation subject to the reporting requirements under section 13 or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m, 78o(d)); or

“(iii) any debtor that is an affiliate of an issuer, as defined in section 3 of the Securities Exchange Act of 1934 (15 U.S.C. 78c).”.