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Bankruptcy and COVID-19 Stimulus or Recovery Rebate Funds

This article was written by Texas Legal Services Center. It was last updated on April 11, 2020. 

The information on this website is not a substitute for, and does not replace the advice or representation of, a licensed attorney. Legal information is not the same as legal advice, which is the application of law to an individual's specific circumstances. 

 

If I file for bankruptcy can I still get my stimulus or recovery rebate check?

Bankruptcy could protect your stimulus or recovery rebate funds so long as you take immediate steps when you learn about a garnishment action. Talk to a lawyer who practices bankruptcy law as soon as possible. You can look for an attorney by using TexasLawHelp's legal help finder tool or calling a lawyer referral service.

 

Is it likely that a bankruptcy trustee would garnish my CARES Act check?

You should talk to a bankruptcy lawyer to confirm.

However, the United States Trustee Program (a part of the U.S. Department of Justice that supervises the administration of bankruptcy cases) sent a notice to all bankruptcy trustees. Trustees have the ability to seize property and administer (that is, seize, sell, or pay) creditor claims. The notice says:

“[I]t is highly unlikely that the trustee would administer the payment after consideration of all relevant circumstances including: the modest amount of the recovery rebate; the applicability of state and federal exemptions; any interest of a non-debtor spouse in the recovery rebate; the cost to the estate of recovering and administering the recovery rebate, including litigation with debtors who may seek a judicial determination; and the extent to which recovering the recovery rebate will enable creditors to receive a meaningful distribution.”

It is possible that the funds could be exempt under federal “wildcard” exemption. A wildcard exemption is an exemption that can be used to protect any property, such as cash and bank accounts, that is not otherwise protected.

If you must use state exemptions, where cash and bank account balances are not exempt, the U.S. Trustee Program guidance suggests that the funds might not be administered. But talk to a bankruptcy lawyer to confirm.

 

Can I be served with a writ of garnishment during the COVID-19 crisis?

The Supreme Court of Texas issued its Tenth Emergency Order prohibiting service of a writ of garnishment until after May 7, 2020. The effect of service of a writ of garnishment is a hold on the debtor’s account so it appears clients will not face account holds until May 7, 2020, unless extended by further order.

Talk to a lawyer to help you decide if you can spend or withdraw the stimulus funds immediately if you receive the money before May 7, 2020. If you have debt problems or judgment liens or both, ask a lawyer if you should avoid direct deposit of the stimulus/recovery rebate money, and consider asking for a paper check (especially if direct deposits are not made in April 2020 as promised by Treasury and/or if funds expected after May 7, 2020).

 

How do you release a garnishment?

Garnishments are ordinarily released with a bankruptcy case filing so long as the garnishment lien exists (i.e. before a judgment of garnishment has been entered). An answer should be filed in the garnishment action if a delay is needed to consider, or file, a bankruptcy case.

An emergency bankruptcy case may be filed, and the automatic stay invoked, with the minimum required form filings (“bare-bones”). If a bare-bones petition is filed, the debtor has 14 days to file all required schedules and statements and documents. 

***A Notice of the Bankruptcy Case Filing issued by the Bankruptcy Court must be served on all parties to the garnishment (e.g. bank, judgment creditor) for the stay to be effective. Additionally, a demand for release of the garnishment made to the judgment creditor. This is ordinarily enough for the judgment creditor to release the funds and direct the bank to remove any hold on the account.

 

If a court has already ordered my assets garnished, can I still challenge it?

Once a garnishment judgment has been entered, it is too late. The funds will flow to the judgment creditor and the funds may no longer be protected in a bankruptcy case because it is no longer property of the debtor at the time of filing the bankruptcy case. So it cannot be property of the bankruptcy estate protected by the automatic stay.

There are remedies to avoid liens, turnover property, and to claw back preferential transfers, but it is not easy and it is not assured. Talk to a lawyer who practices in bankruptcy court.

 

Can I get my bankruptcy filing fees waived?

You are eligible for bankruptcy case filing fee waiver if you are at or below 150% of poverty level. If your income puts you above 150% of the federal poverty guidelines, the fee is $335 for a Chapter 7—which may be paid in installments.

2020 Federal Poverty Guidelines

 

Number of people in your household (include yourself)

150% of Poverty Guidelines
Yearly Income

150% of Poverty Guidelines
Monthly Income

150% of Poverty Guidelines
Weekly Income

1

$19,140

$1,595

$368

2

$25,860

$2,155

$497

3

$32,580

$2,715

$627

4

$39,300

$3,275

$756

5

$46,020

$3,835

$885

6

$52,740

$4,395

$1,014

7

$59,460

$4,955 

$1,143 

8

$66,180

$5,155

$1,273

More than 8*

Add $4,480
for each additional person.*

Add $373
for each additional person.*

Add $86
for each additional person.*

 

SOURCE: U.S. Department of Health & Human Services (at 100%), January 15, 2020https://aspe.hhs.gov/poverty-guidelines

Note: Your income includes any household income you can use. Do not include your spouse’s income if it is not available to you. 

*With the 2020 poverty guidelines that took effect as of January 15, 2020, you add $4,480 for each additional person in the household THEN calculate how much 150% of the federal poverty guidelines would be. So if you had a household of 9 people, you would add $4,480 to $44,120 (100% of the federal poverty guidelines for a household of 8), which equals $48,600. Then, 150% of $48,600 is $72,900/year; $6,075/month; and $1,401/week.