Bankruptcy Code Additional Temporary Flexibility To Address COVID-19 Economic Fallout
The Small Business Reorganization Act of 2019, effective February 22, 2020, already streamlined Chapter 11 procedures for debtors with $2,725,625.00 or less in debt by creating a new Subchapter V. These rules made bankruptcy reorganization for small businesses and professionals easier. Under the Coronavirus Aid, Relief and Economic Security Act (CARES Act), this debt limit has been further liberalized and increased temporarily to $7,500,000.00.
The CARES Act addresses consumer bankruptcies as well. For example, in Chapter 13 cases, plan terms can be extended to a total of seven years if there has been a financial hardship related to the novel coronavirus pandemic. Payments received by debtors pursuant to the CARES Act in both Chapter 7 and 13 cases will also not be considered in the means test calculation and income calculation.
While consumer cases may be the first wave of filings related to the pandemic, lenders should be prepared for increased business filings for small businesses as well. For a description of Subchapter V generally, see our prior article here.