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The Covid Stimulus and Chapter 13

| Mar 28, 2020 | Uncategorized

The Covid-19 Pandemic has had a devastating effect on the economy. Individuals and small businesses have been especially hard-hit and unemployment claims have skyrocketed beyond most worst-case scenarios. Congress has passed, by a near unanimous vote, a major stimulus package. One of the key elements of this stimulus is a cash distribution to the vast majority of American citizens. This portion of the stimulus is intended to give Americans a little extra buying power, which will help small and large businesses stay afloat.

While the stimulus will be a great benefit to most individuals, the question arises in Chapter 13 cases as to whether the stimulus money must be turned over to the Chapter 13 trustee for distribution to creditors.

Paragraph VIII of the official Chapter 13 Plan states the following “the debtor shall promptly notify the Trustee if the debtor becomes entitled to receive a distribution of money or other property (including, but not limited to, bonuses, inheritances, tax refunds or any claim) with a value in excess of $2500, unless Section X specifically provides for the debtors to retain the money or property.” On its face, the plan provision could apply to the stimulus, particularly with families of more than two individuals, since the stimulus purports to pay $1200 per adult and $500 per child. A single individual or married couple with no children probably would not have to report the stimulus, although it’s pretty obvious the trustee would be aware of it in any event.

Thus far, Michael Malaier, the Chapter 13 Trustee for the Tacoma Division, stated that he will not pursue a turnover of the stimulus money. The Seattle Trustee, Jason Wilson Aguilar, has not stated an opinion on the issue. I suspect, and am hopeful, that he will take a similar position. Even if he does not, I suspect the Judges will be open to requests that these bonuses be retained.

The debtor may still choose to contribute the stimulus to the Chapter 13 Trustee. It would be particularly prudent to do so if the debtor had fallen behind on a plan payment that included the debtor’s current mortgage payment. Even when debtors are struggling with the regular plan payment it is always advisable to pay at least enough to cover the ongoing mortgage in order to avoid putting the home in jeopardy.

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