To address the financial burdens of the COVID-19 pandemic, the Federal Government passed a $2 trillion stimulus package to help struggling Americans make ends meet and encourage economic growth. For individuals who are in an active bankruptcy case or are considering filing for bankruptcy relief, the stimulus bill may result in questions about how those funds will be treated.
For people who were already in an existing Chapter 7 bankruptcy in Springfield Missouri before the stimulus bill passed, the stimulus funds should be treated as a post-petition asset. This money should not be available to pay to creditors, and you should be able to retain the funds.
The conversation is slightly different for individuals that file a Chapter 7 bankruptcy case in between the time the stimulus bill was passed and the funds are received. In a Chapter 7 case, funds that are owed to you but have yet to be received must be listed as an asset. This is because you were entitled to receive the property prior to the case filing.
If an asset cannot be protected, it may need to be turned over to the Chapter 7 trustee so that he or she may pay the funds out to your creditors. However, Missouri law provides an exemption, or a protection, for funds that are a “public assistance benefit.”
This is the same law that allows us to protect the portion of tax refund money that is due back to people from the Earned Income Tax Credit and Additional Child Tax Credit. It would be our opinion that any funds from the stimulus bill should be treated as a public assistance benefit. However, laws are constantly evolving, and judges have not yet ruled on this issue.
Due to layoffs and reduced hours, many people in active Chapter 13 bankruptcy cases are already concerned about making their Chapter 13 plan payments. For people in an existing Chapter 13 case in the Western District of Missouri, our office has received communication from the Chapter 13 trustee on how he intends to treat stimulus funds.
At this point, the Chapter 13 Trustee in our district does not intend on pursuing any portion of the stimulus payments. This means that existing Chapter 13 clients may keep the funds to keep your existing plan payments current and additional household expenses covered during this unusual time. If this position changes, we will update our clients with the most recent information.
If you receive the stimulus funds prior to your bankruptcy case being filed, our knowledgeable bankruptcy attorneys can advise you regarding the timing of your bankruptcy filing. As time progresses, the law will undoubtedly develop to account for the significant changes in our economy during this time. Consulting with a bankruptcy attorney that stays up to date on changes in the law is of utmost importance to protect your assets and give you the best possible outcome in your case.
