Increased Bankruptcy Debt Ceiling Extended An Additional Year

Kerr Russell
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Kerr Russell

As we recently reported, the temporary increase of the “debt ceiling” for small business debtors under Subchapter V of the Bankruptcy Code from $2,725,625 to $7,500,000 was set to “sunset” or expire on March 31, 2021. That same day, however, President Biden signed the “COVID-19 Bankruptcy Relief Extension Act” into law extending this and other critical bankruptcy relief provisions established last year under the CARES Act.

The Act extends the increased debt ceiling for small business debtors for one additional year through March 31, 2022. As of now, there is no guarantee or indication that the increased debt ceiling will be extended beyond this date.

Interestingly, the Senate struck certain provisions from the final version of the Act that sought to extend additional bankruptcy relief protections under the Consolidated Appropriations Act of 2021 (CAA). These additional protections are primarily afforded to individual Chapter 7 and Chapter 13 debtors. Unless the expiration date of the CAA bankruptcy relief protections are similarly extended, these provisions will sunset on December 21, 2021. An in-depth overview of the CAA and its key provisions can be found HERE.

Some of the most important bankruptcy relief provisions extended by the COVID-19 Bankruptcy Relief Extension Act include:

  • The increased “debt ceiling” for small business debtors under Subchapter V of Chapter 11 of the Bankruptcy Code from $2,725,625 to $7,500,000.
  • Clarification that COVID-19–related payments from the federal government do not qualify as “income” for bankruptcy filing purposes or as “disposable income” for Chapter 13 debtors.
  • Permitting Chapter 13 debtors to seek payment plan modifications and extend their payments for up to seven years after the initial plan was due if they are experiencing a material financial hardship due to the COVID-19 pandemic.

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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