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Covid-19 related CARES Payments could be taken by bankruptcy trustees in active bankruptcy cases

Litvak Legal Group, PLLC (LitvakLegalGroup.com) continues to follow the news and developments regarding Covid-19 and bankruptcy. As many of you know, the recent CARES stimulus act included some very important bankruptcy-related provisions. First, CARES act excluded all unemployment-related payments from the “income” form means testing purposes. The Act also excluded the payments to individuals and families from the means test as well. We previously reported that the above payments were not explicitly exempted for bankruptcy purposes and unless could be exempted under a specific statute (like a wild-card exemption in states following the federal exemption schemes), it could potential fall to the bankruptcy trustee. The U.S. Trustees Services recently published its opinion on the applicability of the above funds. First, the USTS noted that the above is most likely the “property of the estate” and could be administered by the trustees in pending bankruptcy cases. However, the USTS expressed an opinion that bankruptcy trustees are very unlikely to pursue such a small estate, especially in light of the inevitable large administration expenses. In other words, trustees should not deprive debtors of much needed federal aid, as the funds are of a small significance to the bankruptcy estate. However, many of my colleagues from across the country were quick to point out that there were many instances, where Chapter 7 and 13 trustees were administering bankruptcy estates with just a few hundred dollars in them. It is amazing that such examples of bankruptcy inefficiency exist and seems to be contra the goals and purposes of the bankruptcy law and system.

First, we have not ran into a single trustee in the states and districts of our practice that would administer such a small bankruptcy estate. Of course, we cannot guarantee that none of the Chapter 7 or Chapter 13 trustees would change their mind and start pursuing the CARES payments. After all, there were cases where trustees were pursuing some small unexempted assets, however under a mistaken believe of the true FMV and unexempted equity. Nevertheless, I would caution debtors in pending bankruptcy cases, either to amend their petitions and exempt their CARES related payments or risk a possible turn-over action from their local trustee.
Thank you for turning-in. Be safe and healthy.
Joe Litvak

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