Consolidated Appropriations Act of 2021 Expands Protection for Consumer Debtors

By Lara Martin
Associate, Bernstein-Burkley, P.C.

Keri Ebeck
Partner, Bernstein-Burkley, P.C.

The recently enacted Consolidated Appropriations Act of 2021 (“CCA 2021”) affects many provisions of the bankruptcy code, including a significant, albeit temporary, change to expand protection (codified in 11 U.S.C. § 525) for consumer debtors who file for bankruptcy to allow such debtors to obtain mortgage forbearance relief or other mortgage-related assistance under the CARES Act.

11 U.S.C. Section 525 provides in relevant part that a governmental unit may not deny, revoke, suspend, refuse, or otherwise discriminate against a person that is or has been a debtor solely because of a bankruptcy filing. Section 1001(c) of Title X of the CAA 2021 amends this Section 525 of the Bankruptcy Code by adding that a person may not be denied relief under specific provisions of the CARES Act because the person is or has been a debtor under the Bankruptcy Code. This provision thus now includes a prohibition against discriminatory treatment under Section 525 for those individual debtors seeking CARES Act funding. The relevant CARES Act programs available to individual debtors are: (a) the foreclosure moratorium and right to request forbearance (15 U.S.C. §9056); (b) the forbearance of mortgage payments for multifamily properties (15 U.S.C. §9057); and (c) the temporary moratorium on eviction filings (15 U.S.C. §9058). The CCA 2021 amendment is significant in that mortgage servicer’s need to be sure they do not deny CARES Act relief to borrowers because of a filing and additionally, file appropriate proofs of claims for borrowers who have received a CARES Act forbearance and monitor/adjust their operations to account for these changes to their processes. However, the practical implications of this amendment are still unclear: for example, what, if any, bases for denial of CARES Act relief for prior or current debtors will be considered acceptable by the courts? Servicers in particular will need to monitor case law carefully for the imposition of any regulations or further restrictions prohibiting denial of CARES Act relief for debtors.

This change is temporary for only one year and expires on December 27, 2021.

Written by Bernstein- Burkley, P.C. on March 2, 2021

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