Can I Keep My COVID-19 Stimulus Payment if I File Bankruptcy

If you live on Earth and have not been in a coma recently, you’ve probably been overwhelmed by bad news related to the coronavirus and the brutal economic fallout caused by weeks of business shutdowns. But there is some good news contained in the CARES Act, passed by congress and signed into law by President Trump on March 27th. Among many provisions related to business loans and mortgage and student loan forbearances is a provision allowing for direct cash payments to most individuals in the U.S.. If your adjusted gross income on your 2019 tax return (or 2018 if you have not yet filed 2019 returns) is under $99,000 for a single tax payer or $198,000 for a married couple, you’re entitled to a payment of up to $1,200 per adult and $500 per child. It may not pay all the bills you have, but at least it’s some help!

But what if you need to file for bankruptcy protection after March 26th while waiting for this payment? Unfortunately, congress failed to “exempt” this payment from trustee turnover in a chapter 7 case, so there is nothing specific in the new federal law to keep this from creditors. Many states have a “wild card” or public assistance exemption which would protect these payments from creditors, but Colorado does not have a wild card exemption, and its public assistance exemption law does not appear to cover these federal payments.

Fortunately though, the US Trustee (a part of the Department of Justice which oversees the bankruptcy system and bankruptcy trustees) issued guidance just today which gives Debtors some peace of mind. The US Trustee stated it “expects it is highly unlikely that the trustee would administer the payment after consideration of all relevant circumstances” and further that case trustees are required to notify the US Trustee prior to seeking any such payment from a debtor in bankruptcy. Further, I have heard anecdotally that many case trustees do not want to seek turn over of these payments from debtors.

So while there may still be a risk to you of losing this payment, I am much less worried about this possibility than I was a week ago. Still, I strongly advise individuals considering bankruptcy to seek assistance from an experienced bankruptcy attorney who can properly look at “all relevant circumstances” in your case and properly advise on how property you own and money owed to you would be handled in your case.

We are open (while remaining socially distant) and accepting new clients through the COVID-19 Crisis.