CARES Act Brings Temporary Changes to Bankruptcy Rules

Professional Man and woman looking at papers | CARES Act Brings Temporary Changes to Bankruptcy Rules | Alfred Abel Law Offices

The COVID-19 pandemic has caused financial devastation to businesses and individuals across the country. To bring financial relief to those impacted by this health crisis, on March 27, 2020, Congress passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act providing stimulus payments to individuals, families, and businesses. Along with the distribution of funds, the CARES Act also includes important changes to federal Bankruptcy laws.

With so many businesses forced to close their doors and reduce their workforce, the resulting revenue losses make bankruptcy a real consideration for many Pennsylvanians. If you or your company is facing a possible bankruptcy or you are already in the process of a bankruptcy or business reorganization, understanding how the CARES Act impacts bankruptcy in Pennsylvania is important.

CARES Act Impact on Chapter 11 Business Reorganization

The CARES Act makes an important amendment to the Small Business Reorganization Act of 2019 (SBRA). Only in effect since February 19, 2020, the SBRA provides financially troubled smaller businesses with an option to file for Chapter 11 bankruptcy under Subsection V and do so in a shorter time frame and more cost-efficient manner.

Now with the passage of the CARES Act, the debt threshold limit has been temporarily increased to $7,500,000. The increase in the debt limit for a business debtor to quality for Chapter 11 bankruptcy under Subchapter V makes Chapter 11 a viable option for a small business that otherwise would have exceeded the debt limit. Before the passage of the CARES Act, the debt threshold limit was $2,725,625. The increase in the debt limit is valid for one year from the date the CARES Act was signed into law.

It is important to note, the amendment to the SBRA is only applicable to bankruptcy cases filed after the CARES Act was passed.

CARES Act Effect on Bankruptcy for Individuals

For individual debtors in the midst of or thinking about filing a Chapter 7 or Chapter 13 bankruptcy, questions arise about the COVID-19 stimulus checks. With payments to individuals of up to $1,200 and an additional $500 per child, many debtors are concerned these vital funds will affect their eligibility to file a Chapter 7 or Chapter 13 bankruptcy. The good news is they will not. Under the CARES Act, the one-time stimulus payments are not considered “income” for under a Chapter 7 bankruptcy, nor included in the disposable income calculations in a Chapter 13 bankruptcy plan.

For those individuals already involved in a Chapter 13 case, the CARES Act makes it possible to seek a modification of their Chapter 13 plan if the COVID-19 pandemic is causing financial hardship, including extension of their plan to a total of seven (7) years.

The CARES Act amendments to Chapter 7 and Chapter 13 are only in effect until March 26, 2021.

Seek Advice from Experienced Bankruptcy Attorneys at Alfred Abel Law Offices

The financial impact of the coronavirus and COVID-19 is widespread and affecting businesses and individuals. If you, your family, or your business is struggling with economic hardship and possible bankruptcy, the experienced bankruptcy attorneys at Alfred Abel are here to help. Contact us today to schedule a consultation.