There are key provisions in the Coronavirus Aid, Relief, and Economic Security (CARES) Act that provide additional relief to those businesses and consumers who may be seeking to file bankruptcy. The CARES Act, which became public law on March 27, 2020, was passed to deliver emergency assistance to businesses, families, and individuals affected by the COVID-19 pandemic.
Section 1113 of the CARES Act identifies the following changes in bankruptcy law:
- In February 2020, the Small Business Reorganization Act (SBRA) enacted a subchapter under Chapter 11 allowing businesses with debts under a certain amount to more quickly, and less expensively, reorganize. Under the SBRA, to have the ability to file a case under subchapter 5, a business’s debts should not exceed $2,725,625.
- Under section 1113 of the CARES Act, the debt limit increases to $7.5 million.
- This debt limit increase applies only to bankruptcy cases filed after the CARES Act became effective and is applicable for one year after which the debt limit will decrease back to $2,725,625
- Under section 101(10A)(B)(ii), the definition of “income” was amended by the CARES Act to exclude coronavirus-related payments from the federal government. Also excluded, under section 1325(b)(2), are coronavirus-related payments from “disposable income.”
- If a debtor has experienced or is experiencing a material financial hardship, directly or indirectly, due to the COVID-19 pandemic, the CARES Act allows the debtor to request modification of a plan under section 1329(d)(1)(A).
- Debtors may extend plan payments for up to seven years after the initial plan payment was due.
- This allowance is applicable to any case for which a plan was confirmed before the enactment of the CARES Act.
It’s extremely important to note that all of the provisions altered above will be amended to their original form one year after the enactment of the CARES Act. If you have questions as it relates to the CARES Act, contact our experts today!