Proposed Stimulus Bill Includes Significant Changes to the Bankruptcy Code
The CARES Act passed by the Senate and expected to pass the House in response to the COVID-19 pandemic includes two significant changes to the bankruptcy code that may impact many businesses and individuals.
The first is a significant increase in the amount to qualify for the new Subchapter V Debtor Reorganization bankruptcy process. Under this proposed Act, businesses and some individuals with up to $7,500,000 in secured and unsecured debt qualify to proceed under this streamlined bankruptcy process. Previously, the debt limit was $2,725,625. Businesses filing under Subchapter V may have an easier path for the equity owners to obtain relief and maintain their ownership of the business. In addition, creditors will likely see more small businesses attempt to utilize this new Subchapter V Small Business section to reorganize their business during these times where revenue is likely decreasing at a rapid pace due to various factors.
The second significant change affects those with a confirmed Chapter 13 plan at the time the Act becomes law. Should those individuals determine that they have been impacted by the pandemic, they may seek to amend their Chapter 13 plan. The amendment may extend the repayment period so that they remain in their Chapter 13 case for up to seven years. This will allow those debtors to lower their payments for many obligations by spreading them across an additional 24 months in most cases and even longer if the prior confirmed plan was shorter than a five year plan. Also in most cases, any government money received by a debtor due to the pandemic will not be counted as income for bankruptcy plan purposes.
Should you have any questions about how these changes may impact your business or institution, please contact Steve Barham or Jeffrey Maddux, and we can address your questions and concerns in further detail.
We are continuing to monitor this legislation and its path to enactment and will provide additional alerts and updates. Please contact Jim Catanzaro, Justin Furrow, or your relationship attorney if you have questions or need additional information.
Visit our COVID-19 Insight Center for our latest legislative and legal updates, articles, and resources.
The material in this publication was created as of the date set forth above and is based on laws, court decisions, administrative rulings, and congressional materials that existed at that time, and should not be construed as legal advice or legal opinions on specific facts. In some cases, the underlying legal information is changing quickly in light of the COVID-19 pandemic. The information in this publication is not intended to create, and the transmission and receipt of it does not constitute, a lawyer-client relationship. Please contact your legal counsel for advice regarding specific situations.