COVID relief redefined debtor obligations and collector rights

COVID relief redefined debtor obligations and collector rights

| May 12, 2021 | Collections

The ongoing pandemic has created a shifting economic landscape that continues to challenge struggling consumers and businesses. Bankruptcy may no longer be unavoidable and might be a more attractive option. A recent change in federal law will impact how debtors can reorganize their obligations and how creditors can seek payment for services rendered.

In March, Congress passed, and President Biden signed the COVID-19 Bankruptcy Relief Extension Act (The Act). The measure extends to 2022 up to $7.5 million in debt small businesses and individuals can carry into Chapter 11 bankruptcy. Legislators had capped it at $2.7 million.

The window gives stressed borrowers another year to work out repayment. It also clarifies how lenders and creditors can pursue frozen claims while lawmakers negotiated another relief package.

Filings plunged, but the wave is coming

The Act not only increased the maximum debt limit for businesses to file Chapter 11 bankruptcy but excludes COVID-related relief payments from being defined as income for individuals filing Chapter 7 and 13 bankruptcy.

Other provisions:

  • Let families who have honored all obligations but missed three or less mortgage payments continue to discharge debts.
  • Enforce eviction moratoriums.
  • Prevent utilities from being shut off.
  • Allow creditors and mortgage servicers to claim damages or debts that accrued during implementation of the Act.

Despite the pandemic, consumer bankruptcy filings plunged in 2020 as government stimulus measures bought temporary relief. However, commercial bankruptcies increased 29% to more than 7,100. And economists predict the consumer wave is coming as relief funds dwindle and more bills come due.

Bankruptcy is a constitutional right that allows consumers and businesses to protect their assets and property while reorganizing debt. But it does not erase their obligations. Debtors are entitled to collect what they are owed for products and services lawfully provided.

Protecting debtor interests

Each case presents a unique challenge. It can seem that regulations are only there to protect debtors and tag creditors with costly litigation expenses to collect payment. An advocate experienced in consumer and commercial debt collection stays up to date on evolving laws that impact both sides.

Someone who can aggressively protect your interests and pursue a successful outcome by explaining and making the law work for you.