Will the Bankruptcy Trustee Take your Stimulus Money?

Updated: Sep 30, 2020

The short answer is that the Chapter 13 Trustee won't, but the Chapter 7 Trustee can and might.

What Does the Trustee Look At?

Knowing the loss of jobs and income that people are facing, it is a certainty that the stimulus checks that have come is are crucial to most bank accounts. When facing bankruptcy, one of the first questions most people ask is will I lose my...insert item here; house? car? money? The thing is, trustees have to evaluate all assets including income. Property that is not exempt must be turned over to the trustee.

Bankruptcy Code and the Stimulus Check

The bankruptcy code has been revised by the CARES Act to say that stimulus checks are exempt in the same way social security or VA payment is. It is not considered as part of your current monthly income. This means it is not open season on your check as a way to pay creditors.

Stimulus as Personal Property

Stimulus money that is not considered exempt can become part of your personal property which can then be used to pay creditors or be used in Chapter 13 plan payments to be paid back over time. The CARES Act was passed on March 27, 2020. Any case prior to that date will not have this money considered in personal property. After this date, the chances are highly unlikely that a trustee will try to take this money. There are several reasons for this.

The payment is not large.
State and federal exemptions will likely play a part.
A non-debtor-spouse may have an interest in the payment.
There would be an administrative cost involved in recovering the money.
The consideration that the repayment to creditors would be meaningful.

Here is the Justice Department Notice to Trustees regarding recovery rebates.

The Best Interest of Creditors

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. This notice is basically stating that in the best interest of the creditors test, they are taking into account a Chapter 7 even when considering a Chapter 13 and that since it is "highly unlikely" that it would be seized in a Chapter 7, that is ultimately how it would be treated in a Chapter 13.

What Should You Do?

Read through the to trustees in the link above. Be sure to consult an attorney if you are unsure of where you might fall in this situation. You can schedule a free consultation here and get peace of mind.