Bankruptcy Code revisions: efficiencies for small business debtors

In an effort to create efficiencies in the bankruptcy process for small business debtors, the Small Business Reorganization Act (SBRA) was implemented in February, and Chuhak & Tecson published an overview of the changes two days before it went into effect.

However, as small businesses and their employees face unprecedented challenges related to COVID-19, Congress amended the Bankruptcy Code including a critical section of the SBRA  to expand the scope of eligibility and assistance available to debtors. More specifically, through the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), Congress made the following changes to the Bankruptcy Code:

SBRA’s debt eligibility limit temporarily raised to $7.5 million

Previously, the SBRA’s benefits were exclusively available to small businesses with less than $2,725,625 in aggregate debt. In order to expand the SBRA’s availability, the CARES Act raised the SBRA’s debt eligibility ceiling to $7.5 million in aggregate debt for all bankruptcies filed between March 28, 2020, and March 27, 2021. 

COVID-19 related federal payments excluded from Chapter 7 and 13 debtors’ income

In order to be eligible to file bankruptcy under Chapter 7 or 13 of the Bankruptcy Code, a debtor’s income cannot exceed certain established amounts. Recognizing that many debtors may receive government assistance for COVID-19 related difficulties, Congress amended the code’s definition of “income” to exclude these COVID-19 related payments to a debtor from the federal government. 

Chapter 13 plan modification abilities expanded

In addition, a debtor’s ability to satisfy its existing payment obligations may be impaired by COVID-19, therefore, the CARES Act allows a Chapter 13 debtor experiencing a “material hardship” to request a modification to an existing Chapter 13 payment plan. In fact, for plans confirmed prior to the enactment of the CARES Act, a debtor may be able to extend Chapter 13 plan payments for up to seven years after the initial plan’s payment deadline. Notably, the additional rights to modify Chapter 13 plans will not apply to bankruptcy cases filed after March 27, 2021.

Please check back for updates to learn about changes that impact the lending industry or contact a Chuhak & Tecson Banking attorney for more information.

Client Alert authored by the Banking Group, with a special thanks to Michael W. Debre, Paulina Garga-Chmiel and Michael D. Leifman, Associates.

This Chuhak & Tecson, P.C. communication is intended only to provide information regarding developments in the law and information of general interest. It is not intended to constitute advice regarding legal problems and should not be relied upon as such.

Chuhak & Tecson’s attorneys, paralegals and staff remain committed to staying at the forefront of changes in the law and contributing to the success of our clients and colleagues.