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. 

One of the biggest concerns that people have when they file for bankruptcy is how it will affect their financial situation. Many people who are married have shared finances with their spouse, making bankruptcy that much more difficult. Many people falsely believe that when they are married, they must file for bankruptcy along with their divorce. However, even if you are married and have joint finances with your spouse, you can still file for bankruptcy individually. It is important to note, though, that filing for bankruptcy without your spouse can have an adverse effect on his or her credit, depending on the situation.

What Happens to Our Property?

In Texas, any property that either spouse acquires during the course of the marriage is considered to be joint property. However, for the purposes of bankruptcy, joint property is only considered to be that which has both you and your spouse’s name on it. For example, if a person files bankruptcy separately from their spouse in Texas, all of the property that they own -- even jointly -- is part of the bankruptcy estate. This means a spouse’s vehicle can also be included in the bankruptcy estate, even if they have financed the vehicle alone.

How Does Bankruptcy Affect My Spouse?

There are specific ways bankruptcy can affect your spouse in a community property state. Since all of the property that a couple owns is included in the bankruptcy estate of a married couple in Texas, this means that the protection of the extended stay is also extended to the spouse of a person filing for bankruptcy. This means that the bankruptcy trustee cannot take property that has been excluded as collateral to pay off some of the person’s debt. This also means that any debts that are held jointly by the couple will be discharged upon completion of the bankruptcy, essentially discharging the spouse’s liability from the debt as well.

Borrowing to pay medical debts creates new potential risks. A debt that was easy to discharge in bankruptcy becomes one that you often can’t. 

About one-fourth (26%) of American adults (18-64 years old) reported that they or someone in their household had problems paying medical bills during the previous year. This is according to a 2016 survey by the highly reputable Kaiser Family Foundation, The Burden of Medical Debt. Not surprisingly, more than half of people who did not have health insurance reported such problems. However, more than one-fifth of people who had health insurance still had trouble paying medical bills. So if your medical bills are a challenge for you, you are clearly not alone.

You may have options short of borrowing money to pay off the medical debts. It’s worth contacting the medical creditor—as early as possible—to find out their payment alternatives. Sometimes interest-free repayment plans are available. In some situations, medical providers are willing to negotiate a settlement with you reducing the balance. Especially if you are uninsured, you might even qualify for financial assistance.

The usual deadline to apply for health care coverage under the Affordable Care Act was Dec. 15, 2020. It’s now been extended to Aug. 15, 2021.   

Our last several weeks of blog posts have been about health insurance and medical bills. Two weeks ago, we got into the topic of health insurance and bankruptcy. Last week was a Q&A about medical bankruptcy. Today we provide urgent information about the current extended Special Enrollment Period for getting insurance under the Affordable Care Act.

Two Key Changes

In the last several months, there have been two major developments with the Affordable Care Act (“Obamacare”).  First, a Special Enrollment Period allowed people to start health insurance coverage way past the usual December 15, 2020 deadline. Second, the American Rescue Plan Act lowered the cost of monthly premiums under the Affordable Care Act, often significantly.

Being in debt is not uncommon. According to Bankrate, consumer debt across the United States has reached $14.2 trillion, with the average American being nearly $93,000 in total debt. There are many different types of debt, including credit card debt, student loans, car loans, or personal loans. When you are in debt over your head, you have a couple of options when you are seeking assistance. Both debt settlement and bankruptcy can help you get out of debt, but the method through which they do that could not be any more different.

Debt Settlement

Debt settlement is an alternative to bankruptcy that may be right for some people. Debt settlement occurs when you or a representative from a debt settlement company contact your creditor to negotiate a settlement amount that is typically much lower than the original amount you owed. In some cases, you may be able to negotiate the settlement so that you are only left responsible for 50 to 70 percent of what your total debt was. The upside to debt settlement is that it is not a legal process. You do not have to file anything with the court. Furthermore, debt settlement does not have the same long-term effect on your creditworthiness as bankruptcy. 

Bankruptcy

Filing for bankruptcy can be a much longer and complicated process than debt settlement. Bankruptcy is the process of declaring that you cannot pay your debt and you want the government’s help. There are two different types of consumer bankruptcies: Chapter 7 and Chapter 13. In a Chapter 7 bankruptcy, all of your debts and liabilities are forgiven after the bankruptcy is successfully discharged. In a Chapter 13 bankruptcy, your debts are reorganized into a payment plan that is manageable for you, while the remaining debt is forgiven at the end of your repayment period. Bankruptcy has a significant impact on your credit score and the bankruptcy stays on your credit report for up to 10 years after the bankruptcy is discharged.