In response to the novel coronavirus, also known as COVID-19, President Trump signed into the law the Coronavirus Aid, Relief and Economic Security Act (the “CARES ACT”) to provide a $2 trillion economic stimulus package to support businesses and individuals impacted by the virus. The CARES Act includes revisions to certain portions of the U.S. Bankruptcy Code in an effort to provide better and more effective bankruptcy relief to small business owners and individuals.
Impact on Small Business Reorganization Act
The CARES Act amends the Small Business Reorganization Act of 2019, which became effective February 19, 2020. This new Act temporarily increases the debt threshold for filing for relief under the new Subchapter V of Chapter 11 of the Bankruptcy Code from $2,725,625 of debt to $7,500,000. The eligibility threshold will revert to from $2,725,625 after one year. The SBRA is designed to enable small business debtors to reorganize their financial affairs in a more efficient and cost-effective manner while also maintaining more control over their businesses.
Impact on Chapter 7 Bankruptcy
The CARES Act also impacts some of the provisions of the Chapter 7 bankruptcy code. It amends certain provisions to help consumers who be or have been financially harmed by the coronavirus pandemic.
One key changes that consumer should be aware of involves federal payments received as part of the CARES Act and other stimulus packages. These payments will not be included in the definition of “outcome” for eligibility purposes under the bankruptcy code. The payments will also not be included in the calculation of “disposable income” for plan confirmation purposes. The proposed changes are designed to allow consumer debtors to receive the full benefit of stimulus payments without have to worry whether it will impact their ability to file bankruptcy.
Consulting with a Bankruptcy Attorney
The spread of COVID-19 has had worldwide ramifications on a multitude of industry sectors, as well as individuals personally. Although some businesses and individuals may be able to get back on their feet once things have calmed down a bit, most will find themselves in financial ruins. For some, filing bankruptcy may be the only solution in getting the relief they need to start fresh.
Call an Experienced Central Valley Bankruptcy Attorney
If you or your business has been impacted by the COVID-19 pandemic and are planning to file or in the midst of a bankruptcy proceeding, it is in your best interest to consult with an experienced bankruptcy attorney to help you learn your legal rights and options, especially with respect to Chapter 7 bankruptcy.