The COVID-19 pandemic has brought unprecedented financial hardships for many families. In response, the government has provided various forms of financial assistance, including Child Tax Credit Payments and COVID relief funds. While these funds have provided much-needed relief, many individuals are now wondering how these payments will be treated in bankruptcy.

The Child Tax Credit is a tax benefit that provides families with a credit for each qualifying child. Beginning in July 2021, the Child Tax Credit payments were expanded and made available to families on a monthly basis. These payments are intended to provide financial assistance to families with children who may be struggling due to the pandemic.

In bankruptcy, Child Tax Credit payments are generally considered exempt income. This means that these payments are not included in the calculation of your monthly disposable income, which is used to determine your eligibility for Chapter 7 or Chapter 13 bankruptcy.

However, there are some limitations to this exemption. For example, if you have a high income and the Child Tax Credit payments significantly increase your income, the bankruptcy court may view these payments differently. Additionally, if you receive the payments but do not use them for necessary expenses, such as rent or utilities, the bankruptcy court may consider these funds as part of your disposable income.

The federal government has provided various forms of COVID relief funds, including stimulus payments, unemployment benefits, and small business loans. These funds were intended to provide financial assistance to individuals and businesses who were struggling due to the pandemic.

In bankruptcy, COVID relief funds are generally treated as exempt income. However, as with Child Tax Credit payments, there may be some limitations to this exemption. For example, if you receive a large sum of money from a COVID relief fund and do not use it for necessary expenses, the bankruptcy court may view these funds as part of your disposable income.

It is also worth noting that some COVID relief funds, such as small business loans, may be considered assets rather than income. If you have received a small business loan and used the funds to purchase assets, such as equipment or inventory, these assets may be subject to seizure by the bankruptcy trustee.

In general, Child Tax Credit payments and COVID relief funds are considered exempt income in bankruptcy. However, there may be limitations to this exemption depending on your individual circumstances. If you are considering filing for bankruptcy and have received these types of funds, it is important to speak with an experienced bankruptcy attorney to understand how these payments will be treated in your case.

If you have any questions, feel free to reach out to your Auburn bankruptcy attorney at 530-797-4402

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