The Small Business Reorganization Act, signed into law by President Trump in August 2019, became effective on February 19, 2020, shortly before the coronavirus struck hard in the U.S.
By the end of March 2020, Congress had enacted, and President Trump had signed, the $2 trillion “Coronavirus Aid, Relief and Economic Security Act” (CARES Act), providing financially distressed consumers and small businesses with greater access to bankruptcy relief.
Before SBRA, struggling businesses had two bankruptcy options: chapter 7 or chapter 11. A business that chose chapter 7 could liquidate its assets, but it could not retain control of its operations — nor was the business likely to be able to afford the costs of a chapter 11 bankruptcy, or to be able to pursue chapter 11’s time-consuming reorganization.
The aim of the SBRA was to expedite the reorganization of “small business debtors” — that is, businesses with debts totaling not more than $2,725,625.
The CARES Act amends the SBRA to increase the eligibility threshold for businesses filing under the new subchapter V of chapter 11 of the U.S. Bankruptcy Code from $2,725,625 of debt to $750,000. The eligibility threshold will return to $2,725,625 after one year.
The CARES Act amends the definition of “income” in the Bankruptcy Code for chapters 7 and 13 to exclude coronavirus-related payments from the federal government from being treated as “income” for purposes of filing bankruptcy.
It clarifies that the calculation of disposable income for purposes of confirming a chapter 13 plan shall not include coronavirus-related payments.
It explicitly permits individuals and families currently in chapter 13 to seek payment plan modifications if they are experiencing a material financial hardship due to the coronavirus pandemic, including extending their payments for up to seven years after their initial plan payment was due.
The bankruptcy provisions of the CARES Act listed above will sunset within a year of the legislation’s enactment.
If you have questions about bankruptcy, please contact experienced Brooklyn bankruptcy attorney Bruce Weiner, for a free initial consultation.