Bankruptcy provisions of expanded CARES Act set to expire

Among many other accommodations, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) has provided small businesses and individual debtors with expanded access to bankruptcy relief. Extended provisions include:

  • Increased debt limit from $2,725,625.00 to $7,500,000.00 for debtors seeking to file for Chapter 11 bankruptcy as a small business debtor under the new provisions of sub-section 11. chapter V of Small Business Reorganization Act;
  • Amend the definition of “income” to exclude federal COVID-19 relief payments for Chapters 7 and 13;
  • Excluding federal COVID-19 relief payments from the disposable income calculation for purposes of confirming the Chapter 13 plan; and
  • Allowing Chapter 13 debtors to request changes to the plan when they encounter financial hardship related to COVID-19, including extending the plan term to seven years.

Originally scheduled to expire in March 2021, these provisions have been extended for one year until March 27, 2022, in accordance with the COVID-19 Bankruptcy Relief Extension Act of 2021. While there appears to be bipartisan support for a similar extension, we have yet to see any concrete proposals to extend some or all of the CARES Act bankruptcy provisions.

Practical point: Small business debtors and their creditors should be aware of the upcoming expiration of the increased debt limit for Sub-Chapter V eligibility. Unless legislative intervention materializes, there could be an increase deposits before the end of the month by debtors who wish to take advantage of the increase in the debt ceiling.

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