The CARES Act’s March 27, 2021 deadline for excluding pandemic relief payments from the means test was extended by one year to March 27, 2022.

At the beginning of the pandemic, the CARES Act made some helpful temporary changes to consumer bankruptcy law. (See our blog post in March 2020 about this.) Those changes had expiration dates which have now passed. However, in the meantime, Congress passed two other laws which extended the changes. They are still temporary changes. As time passes, these consumer bankruptcy law changes and their new expiration dates continue to be important. Today we focus on one of these changes pertaining to the Chapter 7 means test. 

All Pandemic Relief Payments Excluded as Income for the Means Test

The point of this first change is to prevent the pandemic relief payments from disqualifying people from Chapter 7, “straight bankruptcy.” People could receive and spend their payments without jeopardizing their bankruptcy options. Here’s how it works. 

Your Chapter 7 trustee may pay your priority debts—in full or in part—through the proceeds of the sale of your unprotected, not exempt assets.

Our last blog post was about what happens to priority debts in a no-asset Chapter 7 case. Most consumer “straight bankruptcy” Chapter 7 cases are no-asset ones. This means that the bankruptcy trustee does not take anything from the debtor because everything is protected, “exempt.” The trustee does not take and liquidate any assets, and has nothing—no assets—to distribute to the debtor’s creditors. That’s a no-asset Chapter 7 case.

In a Chapter 7 case all or most “general unsecured debts” get “discharged”—legally written off. That’s one of the big benefits of Chapter 7.

Last time we said there are two kinds of unsecured debts, “priority” and “general unsecured”:

Most people easily pass the means test based on their relatively low income. Timing plays a huge role in calculating your income.

The Means Test

To file and complete a Chapter 7 “straight bankruptcy” case you have to qualify for it. The main hurdle in qualifying is what’s called the “means test.” That is, to qualify for Chapter 7 you have to show that you don’t have too much “means.”

What does the completion of a successful Chapter 7 “straight bankruptcy” case look like? What happens to your debts?

A Sample Chapter 7 Case

In our last blog post we wrote about completing a Chapter 13 “adjustment of debts” case. Today we’re doing the same thing with a Chapter 7 case.