CARES Act - Bankruptcy - Relief for Small Business and Individual Debtors

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CARES Act | Senate HR 748, 116, 2d., Section 1113 (the “CARES Act”)

Summary as of noon on March 26, 2020.

Section 1113 – Bankruptcy

Part (a): The CARES Act increases the noncontingent liquidated debt limit from about $2.7 million to $7.5 million for one of the eligibility requirements to be a small business debtor under Subchapter V of chapter 11 of the Bankruptcy Code. As an aside, the small business debtor provisions of Subchapter V were substantially revised in 2019 and took effect on February 22, 2020, so there are very few cases to date filed under newly revised Subchapter V. Subchapter V allows a small business debtor to expeditiously confirm a chapter 11 plan without satisfying all of the requirements of chapter 11. Part (a) applies to cases filed on or after the date the CARES Act is enacted, and sunsets 1 year after the CARES Act is enacted, reverting to the pre-CARES Act language.

Part (b): The CARES Act excludes from an individual debtor’s monthly income calculations to determine eligibility for chapter 7 bankruptcy, and from disposable income for payments made to creditors under a plan in chapter 13 bankruptcy, any payments received by the debtor under Federal law relating to the national emergency declared by the President related to COVID-19. The CARES Act also allows for extending the time limit to repay creditors under a chapter 13 plan confirmed prior to the date the CARES ACT is enacted, from a total of 5 years to 7 years if the debtor was impacted by COVID-19. Part (b) applies to cases commenced before, on or after the date the CARES Act is enacted, and sunsets 1 year after the CARES Act is enacted, reverting to the pre-CARES Act language.

Section 4003 – Federal Reserve $500 Billion Business Loan Program

Part (c)(3)(D)(i)(V): Mid-size businesses that would otherwise be eligible to receive low interest rate loans from the Federal Reserve will not be eligible if they are a debtor in bankruptcy.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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