News: General News

CARES Act Changes Bankruptcy Rules for Small Businesses

Thursday, June 25, 2020  
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Included in the federal relief package known as the Coronavirus Aid, Relief and Economic Securities (CARES) Act are several temporary changes to the U.S. Bankruptcy Code for small businesses and individuals.

Key bankruptcy provisions include:

  • Amending the Small Business Reorganization Act of 2019 (SBRA), which became effective in February 2020, to increase the eligibility threshold from $2,725,625 of debt to $7,500,000 for businesses filing under U.S. Bankruptcy Code chapter 11, subchapter V. After one year, the threshold will return to $2,725,625.
  • Changing the definition of “income” for chapters 7 and 13 to exclude federal government coronavirus-related payments from being considered as “income” for bankruptcy.
  • Specifying that coronavirus-related payments are not included in the calculation of disposable income for chapter 13 reorganization plans.
  • Allowing individuals and families already in chapter 13 to modify their payment plans if the pandemic resulted in a material financial hardship. Relief may include extending their payments for up to seven years after the initial plan payment was due.

The bankruptcy provisions of the CARES Act listed above will end one year after the CARES Act’s effective date of  March 27, 2020.