Can Bankruptcy Trustees Take Your CARES Act Stimulus Payments? (Probably Not)

(Wishing everyone remains safe and healthy, and looking forward to days with fewer masks and more smiles!)



It’s a major source of concern for those in bankruptcy, or considering it. 

Individuals in the midst of a bankruptcy case are at least as likely as anyone else to have dire need of the checks soon to be issued under the Coronavirus Aid, Relief and Economic Security (CARES) Act of 2020.  The checks are referred to in official circles as “recovery rebates” or “economic impact payments” but are often referred to as “stimulus payments.”  Since “stimulus payment” is shorter, easier to say, and about as accurate a description as anything else, let’s go with that.    

Bankruptcy requires consideration of your income as well as your assets.  Depending on the type of bankruptcy case, you may be required to contribute all of your “current monthly income” or turn over property to a Trustee if you cannot claim the value of the property exempt.  These are two different concepts. 

Not “Current Monthly Income”

The CARES Act amended the Bankruptcy Code to exclude the stimulus payments from the definition of “current monthly income.”  That means that stimulus payments, like Social Security or VA disability, are exempt from the type of “current monthly income” that you can be compelled to pay to creditors. 

“Property of the Estate”? 

A stimulus payment that you might receive can also be looked at as property of the bankruptcy estate.  Such property can be seized in a Chapter 7 case to pay creditors, or you can be forced to pay the value of property over time in a Chapter 13 case, but only if you cannot claim those items “exempt.”  The amounts and types of property you can exempt depend on which set of exemptions apply to you, a sometimes complicated analysis. 

The United States Trustee Program (“UST” for short, the branch of the U.S. Department of Justice that oversees all bankruptcy cases), has provided guidance on this question to Chapter 7 and Chapter 13 Trustees.  Although the CARES Act is silent as to whether stimulus payments are “property of the estate,” the fact that the CARES Act was passed on March 27, 2020 means that it would not be estate property in a Chapter 7 case filed before that date.  As for cases filed after March 27, 2020, the UST states it is “highly unlikely” that a Chapter 7 bankruptcy trustee would attempt to seize the payments after considering all relevant circumstances.  Some of the circumstances to be considered, according to the UST, include:
  • The modest amount of the stimulus payments
  • Applicability of state or federal exemptions
  • Any interest that a non-debtor spouse would have in the payments
  • The administrative costs of recovering and the payments
  • The extent to which the payments would enable creditors to receive a meaningful repayment

The full text of the UST notice is here.

As for Chapter 13 cases, the UST observes that stimulus payments might be relevant in rare cases, on the “best interest of creditors” test.  The “best interest of creditors test” says that a Chapter 13 plan can only be approved if creditors will receive at least what they would receive in a Chapter 7 case.  Reading between the lines, the UST seems to be saying that since it is “highly unlikely” that Chapter 7 Trustees would seize stimulus payments, it’s also unlikely that those payments would need to be taken into account in Chapter 13, because the “best interest of creditors” test ultimately looks at what would happen in a Chapter 7 case. 

If you are represented by an attorney, it’s a good idea to notify him or her when you know that you will be receiving a stimulus payment.  Your attorney can advise you on the best manner to proceed, make appropriate disclosures and amendments, and take all possible steps to protect your interests.

The 7thirteen is a blog written by Jeff Narmore, focusing on consumer bankruptcy issues.  Visit my website at narmorelawoffice.com.


Narmore Law Office LLC is a debt relief agency and helps people file for relief under the Bankruptcy Code.

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