On March 27, 2020, Congress passed the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). Section 1113 of the CARES Act includes notable, temporary changes to the Bankruptcy Code.

The Small Business Reorganization Act

On February 19, 2020, the Small Business Reorganization Act of 2019 (SBRA) became effective and added a new subchapter to the Bankruptcy Code referred to as Subchapter 5 (or Subchapter V). Subchapter 5 is meant to make it easier for small businesses to reorganize under Chapter 11 bankruptcy, which can be very complex especially for small businesses. The SBRA seeks to accomplish that goal through many mechanisms including the appointment of a Subchapter 5 trustee, providing the debtor the exclusive right to file a plan of reorganization, requiring plan filing on an expedited basis, and removing certain barriers to plan confirmation.

The CARES Act temporarily modifies the eligibility requirements under Subchapter 5, increasing the debt limit from $2,725,625 to $7,500,000 for cases filed after the enactment of the SBRA, and that increase is valid for one (1) year. By increasing the debt limit, the CARES Act makes Subchapter 5 a viable option for more small businesses.

Chapter 7 and 13 Bankruptcy

The CARES Act provides for the issuance of stimulus checks in the amount of $1,200 for single individuals who earn up to $75,000, $2,400 for married couples who earn up to $150,000, and an additional $500 per each child under the age of 17. Income is based upon 2019 adjusted gross income, or 2018 adjusted gross income if 2019 tax returns haven’t been filed.

The CARES Act temporarily amends the definition of “income” to exclude CARES Act-related payments from being defined as income for the purposes of Chapter 7 and Chapter 13 bankruptcy eligibility. The CARES Act also temporarily excludes CARES Act-related payments from debtors’ disposable income calculations for the purposes of confirming a Chapter 13 plan. The CARES Act also temporarily permits people in current Chapter 13 cases to seek a modification of their Chapter 13 plans if they are experiencing material financial hardship due to the pandemic and includes a provision for extension of Chapter 13 plans for up to seven (7) total years. These provisions are only effective for one (1) year.

Student Loans

The CARES Act also requires, in Section 3513, the Secretary of Education to defer student loan payments, principal and interest for six (6) months without penalty through September 30, 2020.

Schedule a Free Initial Consultation with our bankruptcy lawyers if you have any questions about the impact of the CARES Act on bankruptcy.

New Jersey Attorney Melinda D. Middlebrooks and Attorney Joseph M. Shapiro have over 30 years of bankruptcy law experience. From our office in Springfield, NJ, we help clients with the most basic or complex personal and business bankruptcy cases by leading them through the legal process of numerous practice areas.

Call 973-218-6877 to speak with the experienced bankruptcy attorneys at Middlebrooks Shapiro. We’ll ensure you get the perspective you need to understand the full picture and the right guidance to have a successful bankruptcy, rebuild your credit, and move forward with your new debt-free life.