The big surprise of the current pandemic is that the great bankruptcy wave of 2020 never materialized. The number of very large corporate bankruptcies increased,^[4] but overall business bankruptcies went down rather than up (from 22,780 in 2019 to 21,655 in 2020), and the decrease in consumer bankruptcy filings was even more dramatic (752,160 in 2019, 522,808 in 2020, a 28% drop).^[5] The most obvious reason for the surprising decline in bankruptcy filings was the enormous amount of stimulus money that buoyed the economy, including well over $1 trillion of business lending capacity in the CARES Act of March 2020 and subsequent boosters of the small business portion of the legislation. In addition, the buoyancy of the stock market provided access to equity capital for firms that might have found themselves in bankruptcy under other circumstances.

Although the pandemic confounded the typical pattern of rising bankruptcies during an economic crisis, in another respect the pandemic has proved true to form: It has provoked a populist backlash. During the 2007-2009 crisis, populist movements emerged on both ends of the political spectrum—the Tea Party on the right and Occupy Wall Street on the left—in each case, protesting bailouts of large financial institutions.

The current crisis has prompted another populist backlash, as can be seen in controversies that have arisen in the Purdue Pharma opioid bankruptcy and in the bankruptcy of USA Gymnastics after revelation of horrendous sexual abuse by former team doctor Larry Nassar. Unlike the Tea Party and Occupy Wall Street, the current outrage is directed at the bankruptcy process itself. There is a growing populist perception that Chapter 11—the bankruptcy provisions used to restructure financially distressed businesses—has become deeply unfair.  It benefits insiders—the “haves”—at the expense of outsiders—the “have nots.”

The closest analogy to the current populist backlash comes not from the most recent pre-pandemic crisis but much earlier, during the Great Depression.^[6] After emerging in the second half of the nineteenth century, the American approach to corporate reorganization (originally known as “equity receivership”) came to be dominated by large Wall Street banks such as J.P. Morgan and large Wall Street law firms such as Cravath, Swaine & Moore. The banks that had underwritten a class of bonds would offer to represent the investors who bought the bonds in negotiations with a financially distressed railroad or other business. In the 1930s, New Deal reformers such as William Douglas—a Yale law professor who became chairman of the Securities & Exchange Commission and later a Supreme Court Justice—concluded that the Wall Street banks and lawyers were profiting (through the fees they charged and by assuming positions of control) at the expense of the investors they purposed to represent. The reformers ripped control from Wall Street by persuading Congress to enact, and President Roosevelt to sign, the Chandler Act of 1938. The Chandler Act prohibited bankers or lawyers that had represented a company before bankruptcy from representing it after the bankruptcy filing, which meant the company’s underwriters could no longer run the reorganization process. Within a few years, Wall Street had disappeared from bankruptcy.

The pandemic has spurred a remarkably similar populist backlash. Even before the pandemic, concerns were growing about current developments in the restructuring of large corporations. Critics complained about companies’ ability to file for bankruptcy almost anywhere they want to (“forum shopping”), insider control of the restructuring process, the payment of bonuses to managers before and during bankruptcy, and the use of bankruptcy in cases like Purdue Pharma to resolve not only the obligations of the company itself but also of individuals or entities like the Sacklers who have not filed for bankruptcy themselves. During the pandemic, discontent with current bankruptcy practice has grown considerably.^[7] Lawmakers have introduced a spate of bills, each of which has been prompted by populist dissatisfaction with current Chapter 11 practice.

This report describes and comments on four practices that have prompted populist backlash. Several other controversial features of current practice that are not considered here are referenced in the footnote below.^[8]

BANKRUPTCY VENUE

The first and most longstanding magnet for populist outcry is a company’s choice of where to file its bankruptcy case—known as bankruptcy “venue.” Under the current filing rule a company can file for bankruptcy in any of the following locations: where its headquarters are; its principal assets are; it is domiciled; or an “affiliate” of the company has already filed for bankruptcy.^[9] Although this sounds like a limited set of options, in practice a company can file its bankruptcy case almost anywhere in the country due to the “affiliate” option. If a Pennsylvania company wished to file for bankruptcy in South Dakota, it could simply create a new, wholly owned entity in South Dakota and have the new entity file for bankruptcy in South Dakota. The Pennsylvania company could then file for bankruptcy in South Dakota since an “affiliate” is in bankruptcy there.

During the decade after the current bankruptcy code was enacted in 1970s, many large corporate debtors filed for bankruptcy in the Southern District of New York. Starting in 1990, Delaware joined New York as another popular filing location for large corporate debtors. The late 1990s saw the first serious challenge to this “forum shopping.” Critics complained that New York and Delaware judges lured companies to their districts by, among other things, allowing bankruptcy lawyers to charge high fees, quickly approving all of the debtor’s initial (“first day order”) requests, and by authorizing rapid sales of the debtors’ assets.^[10] They also complained that New York and Delaware were too inconvenient for employees and small creditors of companies whose operations were in other states, which it made it impossible for small parties to participate.

Venue reform was never enacted, but it continued to percolate, with support from both Democrats and Republicans. In recent years, several other locations have joined New York and Delaware as popular venues, including Richmond, Virginia and most recently the Southern District of Texas (Houston). The new twist in the controversy is that debtors in several of these locations can pick not just the district where they file but the particular judge.^[11] The Southern District of Texas has made this easy by committing to assign all large Chapter 11 cases to two judges in the district. In Southern District of New York, a debtor that files its bankruptcy case in White Plains was, until late last year, certain to get Judge Robert Drain, the only Southern District of New York judge sitting in White Plains.^[12] Purdue Pharma appears to have filed its case there for this reason.

Congress is currently considering legislation sponsored by Senators Cornyn (R-TX) and Warren (D-MA) that would ban venue shopping.^[13] Under the proposed legislation, large corporate debtors would generally be required to file for bankruptcy in the state where their headquarters or principal assets are.^[14] The reform would remove domicile—the state where a debtor is incorporated—as a venue option, and the debtor could only file for bankruptcy where an affiliate has filed if the affiliate owns a majority of the debtor’s stock—that is, if the affiliate is the parent corporation.

As often is the case with populist measures, the proposed legislation has beneficial features but also deeply problematic ones. Some of the forum shopping concerns are well taken.  Debtors should not be able to pick particular judges within a district and permitting a debtor to file anywhere an affiliate has filed is too easy to manipulate. But removing a debtor’s ability to file in its domicile would be seriously counterproductive. The loser here would be Delaware, where most large corporations are incorporated. Not only is the debtor’s state of domicile an obvious filing location for a large corporation, but substantial empirical evidence suggests that debtors that file for bankruptcy in Delaware file there because of the expertise of Delaware’s bankruptcy judges.^[15]

THIRD PARTY RELEASES

Another contentious practice is so-called “third party releases.” When a corporation completes a Chapter 11 reorganization, its prebankruptcy obligations are extinguished. The bankruptcy laws only contemplate that the corporate debtor’s obligations will be extinguished, however, not the obligations of other parties such as the directors or officers of the debtor or outside parties that were involved in wrongdoing by the debtor. In many cases, a corporate debtor asks the court to extinguish the obligations of some of these other parties, often in return for a payment by the third parties. In the Purdue Pharma case, the Sacklers agreed to pay roughly $4.5 billion in return for a court order extinguishing their potential liability related to the opioid crisis. When companies owned by private equity funds file for bankruptcy, the private equity sponsor often seeks this protection. Such a release is known as a third-party release.

Courts have struggled with the question of whether third party releases should be permitted. Except with corporate debtors that have asbestos liability, which are subject to a special rule,^[16] bankruptcy law does not speak to the question of whether third party releases are permissible. There are plausible arguments that they are constitutional and plausible arguments that they are not.^[17] Some courts allow them, while others do not. As a result, corporate debtors sometimes seek to file their case in a location where third-party releases are permitted.

The Sacklers’ efforts to obtain third party releases has triggered populist ire at their use. The bankruptcy judge approved the releases, although he required the debtor to reduce the scope of the releases. The district court subsequently reversed, concluding that the bankruptcy laws do not authorize third party releases.^[18] This decision has been appealed to the federal court of appeals.

As with bankruptcy venue, Congress is currently considering a dramatic intervention—legislation that would almost completely ban third party releases.^[19] Unlike with venue, there is a plausible argument for simply disallowing third party releases, even if they are legally permissible. The argument is that parties who have not themselves filed for bankruptcy should not be entitled to benefits of bankruptcy such as the extinguishing of debts. If the Sacklers or other third parties want this benefit, they need to file for bankruptcy.

The argument that third party releases should be permitted, at least on some occasions, is more pragmatic. Some argue that the treatment of nondebtors such as the Sacklers is so closely related to the debtor’s reorganization that the company’s financial distress cannot be resolved without also addressing potential claims against the nondebtors.^[20] Defenders of third party releases also contend that everyone, including victims, may be better off when a release is given in return for compensation by the third parties. The Sacklers have argued that if they were not given relief they would defend themselves vigorously outside of bankruptcy and victims would likely receive much less than the $4.5 billion the Sacklers have agreed to pay in the bankruptcy.

Rather than simply banning third party releases, a more nuanced response would be to insist that third parties seeking a release provide more transparency about their assets and ability to contribute.^[21] In a sense, they would be required to submit to some same rules about disclosure that would apply if they had filed for bankruptcy. Releases might also be limited to third parties that did in fact make a substantial contribution to the payment of victims or other creditors.

THE “TEXAS TWO-STEP”

A third controversial practice is moving assets from one entity to another—often creating a “good company” with plenty of assets and an asset poor “bad company”—and then subsequently putting one or both of the entities in bankruptcy. Private equity funds often conduct internal reorganizations that are alleged to have this effect after they acquire a company, as in the Chapter 11 cases of the Chicago Tribune and Caesar’s.^[22] More recently, financially distressed debtors have taken advantage of a Texas law that appears to bless these transactions.^[23] The most controversial current example is Johnson & Johnson. Johnson & Johnson created a separate entity for its talc line of business, which is subject to numerous lawsuits, and put the separate entity into bankruptcy. This strategy has become known as the “Texas Two-Step.”

These transactions also have spurred populist backlash, both because they seem to involve manipulation by insiders and because the manipulators often are private equity funds, a bête noire of many populists. The proposed legislation to ban third party releases mentioned earlier also would amend bankruptcy law to require dismissal of any case involving a divisional merger that “had the intent or foreseeable effect of … separating material assets from material liabilities … and … assigning all or a substantial portion of those liabilities to the debtor.”^[24]

As with the other issues, courts already have a more nuanced response available to them. When a company transfers assets from a “bad company” to a “good company” within its corporate structure and one or both later end up in bankruptcy, the transfer can be challenged as a “fraudulent conveyance” if the bad company did not receive adequate compensation for the assets it transferred. Fraudulent conveyance challenges were central to the Chicago Tribune and Caesar’s cases.

With a Texas Two-Step transaction, creditors also can challenge the bankruptcy case as having been filed in bad faith. If the transaction is abusive—if the bad company doesn’t have any real assets, for instance—the court can simply throw the case out.

LENDER CONTROL OF BANKRUPTCY OUTCOMES

Another controversial feature of current practice is lenders’ use of their financing agreement and related contracts to dictate the outcome of a Chapter 11 case. When Neiman Marcus filed for bankruptcy, it had signed a financing agreement with lenders to borrow $675 million, together with a so-called Restructuring Support Agreement that locked in a reorganization plan that required Neiman to transfer control to the lenders.^[25] Once the financing was approved, the case was over—no other outcome was possible.

If the market for providing financing to debtors in bankruptcy were competitive, lenders’ use of lending agreements to control the restructuring process might be less problematic. But the debtors’ current senior lenders have a monopoly, or nearly so, because other lenders fear that their loan will simply subsidize the senior lenders if the senior lenders have priority over the new lenders. Only if the court awards new lenders a “priming lien”—that is, priority over the current senior lenders—will new lenders offer to finance the debtor’s operations in bankruptcy.  Bankruptcy courts have the power to provide priming liens if the senior lenders will be “adequately protected,” but they have been reluctant to do so.^[26]

Although the monopoly of debtors’ current lenders has not yet gotten significant attention in policy circles, the issue is even more pervasive in practice. As with the issues discussed earlier, the problem does not require a legislative solution. Bankruptcy courts could facilitate competition by signaling a greater willingness to grant priming liens to new lenders and by declining to enforce contractual provisions that impede competition.^[27]

A BREAKING POINT?

Complaints about insider control of Chapter 11 were rising even before the recent pandemic. The pressure has steadily increased during the pandemic, due both to the pandemic and to the confluence of highly controversial bankruptcy filings by Purdue Pharma, USA Gymnastics, the Boy Scouts, and others.

The long-term implications of the populist backlash triggered by these developments may depend on how bankruptcy professionals and bankruptcy judges respond to this unrest. If courts address the legitimate concerns raised by bankruptcy populists, the credibility and effectiveness of Chapter 11 may be restored. The Johnson & Johnson and Purdue Sackler cases offer hints of such a trend. With the talc entity of Johnson & Johnson, a bankruptcy judge transferred the case from North Carolina to New Jersey after allegations of forum shopping, and a motion to dismiss the case as having been filed in bad faith is pending. In Purdue Pharma, a district court struck down the controversial Sackler releases.

If these problems continue to fester, the populist backlash may lead to sweeping bankruptcy reform. Such reform is unlikely to be carefully tailored to the problems that prompted it. It could even destroy traditional Chapter 11 practice, much as the Chandler Act of 1938 brought an end to the reorganization framework that presaged current Chapter 11.

Although the pandemic did not overwhelm the bankruptcy system as many expected, it did bring a spate of preexisting conditions to light.^[28] The lesson for bankruptcy insiders, the “haves” of the bankruptcy process, seems to be “Physician, heal thyself,” before it’s too late.

The COVID-19 pandemic is a human health emergency with profound and wide-ranging economic impacts. Like many economic crises before it, the current recession has caused a marked decline in business activity, interruptions to global value chains, increased unemployment, credit squeezes, and rising government debt levels. It has also caused a liquidity shortfall for both businesses and individuals, weakening their ability to meet debt payment obligations and pushing many into a state of insolvency. 

In light of the bleak financial reality faced by countless firms during the pandemic, questions arise as to whether these businesses can withstand the storm. A recent note by the World Bank Group explores the pandemic’s early impact on formal business insolvency filings and provides predictions as to what can be expected in the medium and long term.

Economic recessions are linked to surges in insolvency filings in both advanced and emerging economies. In early 2020, a rapid consensus emerged predicting a sizeable increase in the number of business insolvencies due to the pandemic’s negative economic impacts. Many expected rates to repeat the escalation of filings experienced during the 2008 Global Financial Crisis. However, the evidence that emerged in the following months painted a very different picture: Formal business insolvency cases dropped in many countries—in many cases, significantly—in the second and third quarters of 2020.

This trend was partly due to the unprecedented level of fiscal support programs and payment holidays implemented by governments and the private sector. Several direct legal interventions also played a role, such as temporary changes to creditor rights, increased barriers for creditor-initiated insolvency filings, suspension of the duty to file for insolvency and related liabilities, and emergency debt enforcement freezes.

Figure 1: Relative Monthly Change in Business Bankruptcy Filings (compared to September 2019), by Country

Image

Yet rates of business insolvencies are likely to increase in the medium and long term. 

Lower sales, higher unemployment, heightened corporate balance sheet vulnerabilities, and enduring liquidity challenges continue to erode business finances and call for insolvency filings for distressed firms. Previous crises have demonstrated that solvency issues, debt defaults, and non-performing loan (NPL) build-up may take several quarters to peak.

Rather than avoiding the wave of business insolvency filings altogether, the evidence suggests that we have merely postponed the coming of the tide to the months and years ahead. Even after COVID-19 vaccines usher in a “return to normalcy” and the easing of social distancing directives, many businesses will likely be compelled to enter into insolvency proceedings  as they fail to regain their footing in the post-pandemic economy.

Governments must confront this upcoming increase in insolvencies by strengthening insolvency regimes and developing agile preventive mechanisms and effective judicial processes.  Doing so will mitigate some of the pandemic’s worst economic effects, ensure sound firms are given a fair shot at survival, and build a more resilient economy to weather future crises.

However, it is important to know what the moratorium actually means and to plan ahead for when it ends.

The words “moratorium” or “ban” can be somewhat misleading, as it makes it seem as if everyone is protected — but really, not everyone is covered and there are steps you need to take to be protected. The CDC has produced a form that you have to fill out and provide to your landlord. If your landlord has filed an eviction suit against you, you should provide a copy of the form to the court as well.

On the form, you will have to explain that you:

1. Make a certain amount of money, or received certain benefits
2. Cannot make your rent payments and why
3. Have done your best to make partial payments as you can
4. Have done your best to get government assistance for rent
5. You will have to move in with others if evicted

It is also important to know that the moratorium does not cancel your rent; it only prevents you from being evicted if you meet the criteria. Once the moratorium ends, you will still owe any rent that has not been paid.

At that point, state law will determine whether your landlord can evict you. If you will be past due in rent, or can no longer afford your rent, bankruptcy can provide you relief.

While bankruptcy does not prevent evictions, it does allow a renter to reject an unaffordable lease, including the past due rent, and provides a good way to wipe out other debts and get a fresh start. So, if you have decided to move and are concerned about the remaining term on the lease, a bankruptcy will keep your landlord from pursuing any past-due rent. If you can afford ongoing payments and want to keep your lease but cannot afford the past due rent, a Chapter 13 bankruptcy can be used to pay the past due debt over a period of time, with the consent of the landlord.

Call Firebaugh & Andrews for your free consultation 734-722-2999

The CARES Act provision that increased the maximum debt threshold for Subchapter V small business debtors from $2,725,625 to $7,500,000 will continue for another year, thus allowing more small businesses to reorganize under the streamlined Chapter 11 procedures.

In addition, the one-year sunset provisions in the CARES Act involving the exclusion of COVID-19-related government payments from the calculation of “current monthly income” in the case of a Chapter 7 debtor and “disposable income” in the case of a Chapter 13 debtor were extended to March 27, 2022, along with the CARES Act provision that gives Chapter 13 debtors experiencing material financial hardship due to COVID-19 the right to modify a Chapter 13 plan to extend plan payments for up to seven years from the date the first payment was due under the original confirmed plan.

The Durbin-Grassley bill, as first introduced, included provisions that sought to extend from December 27, 2021, to March 27, 2022, several bankruptcy relief sunset provisions included in the December 2020 Consolidated Appropriations Act, 2021. These provisions related primarily to Chapter 7 and 13 individual debtors, but also to utility companies (requiring continuing service to the individual debtor without a security deposit) and custom brokers who collect and pay duties to U.S. Customs and Border Protection on behalf of importers who file for bankruptcy (exempting them from the clawback provisions of the Bankruptcy Code). The Senate version of the act, which was the version ultimately signed into law, did not include these provisions.

When the pandemic slammed into America’s economy last spring, some observers said it was a matter of time before consumers turned to bankruptcy to free themselves of debt.

But the surge never came, at least not in 2020. The total tally of bankruptcy cases dropped 30% from a year earlier.

The trend has continued so far this year. The nearly181,000 bankruptcy cases filed by May 2021 is 29% lower than the same point last year, according to statistics compiled for the American Bankruptcy Institute.

Now, a new study suggests the wait will continue — and possibly at a great cost to the people who are facing climbing debt loads.

By filing for Chapter 7 bankruptcy, a liquidation, or Chapter 13 bankruptcy, an installment plan, people and their creditors can work out court-approved arrangements to pay off balances and discharge debts.

People wait an average of 22 months after their first 90-day past-due notice to file for bankruptcy.— Researchers at Brigham Young University and MIT Sloan School of Management

But it can take a while to get to that point, with people waiting an average of 22 months after their first 90-day past-due notice to file for bankruptcy, according to Brigham Young University and MIT Sloan School of Management researchers.

But it can take a while to get to that point, with people waiting an average of 22 months after their first 90-day past-due notice to file for bankruptcy, according to Brigham Young University and MIT Sloan School of Management researchers.

“For an average consumer, as they delay bankruptcy they are likely digging a deeper hole,” said Ben Iverson, a BYU finance professor who is one of the study’s authors.

“A lot of this increase comes in what we call ‘shadow debt,’ which is debt that is not on credit reports,” he said. That includes debts like bounced checks, unpaid rent and certain medical costs.

The new study is in line with past research examining the lead up to bankruptcy. Two-thirds of people in a previous study said they “seriously struggled” with debt for two years before filing, a 2018 study said.

Shadow debt is not included on credit reports, and includes debts like bounced checks, unpaid rent and certain medical costs.

The new findings put a price tag on the wait. Borrowers racked up $4,000 in unsecured debt on average for every month they delayed filing, researchers said.

Unsecured debt means it’s not backed by collateral like a house. Past-due credit card and medical bills are two forms of unsecured debt.

The “shadow debt” can also rise an average $7,200 for every month of filing delay, the study said.

Overall, people owed an average $240,000 by the time they filed for bankruptcy, the latest research concluded.

Overall, people owed an average $240,000 by the time they filed for bankruptcy, the latest research concluded. They combed through more than 550,000 consumer bankruptcy cases filed between 2001 and 2018 when writing the paper, which was distributed this week by the National Bureau of Economic Research.

Rather than curtailing the benefits of bankruptcy’s fresh financial start, the authors said another idea might be encouraging “potential defaulters to enter bankruptcy more quickly to free up cash flows for future consumption.”

To be sure, filing for bankruptcy is a serious step that people shouldn’t rush into.

For example, a Chapter 7 bankruptcy sticks on a person’s credit reports for 10 years and a Chapter 13 bankruptcy gets deleted from credit reports 7 years after filing.

Chapter 7 bankruptcy sticks on a person’s credit reports for 10 years. Chapter 13 gets deleted from credit reports 7 years.

During that time, a person’s credit score can drop and it may be more expensive for them to obtain loans. It also wipes out the credit history before that point, and, as one bankruptcy attorney previously said, that past history may be worth erasing.

While bankruptcy cases keep dropping for now, the economy is rebounding from 2020’s shockwaves. For example, May’s jobless rate hit a pandemic low of 5.8% and job openings hit a record high 9.3 million in April, amid a labor shortage.

So the timing and extent of any pandemic-related surge in consumer bankruptcy cases remains to be seen.

“Continued stabilization efforts by the federal government, forbearance by lenders and sustained low interest rates have helped keep many businesses and households afloat during the crisis,” Amy Quackenboss, the American Bankruptcy Institute’s executive director, said when the organization released the May filing numbers.

“As the pandemic relief runs its course, however, mounting financial challenges may result in more households and companies seeking the shelter of bankruptcy,” she said.

The new study was working off data from pre-pandemic bankruptcy cases, Iverson emphasized. So the effects of pandemic-related initiatives like supplemental unemployment insurance were not included, he said.

Bankruptcies usually don’t occur without a trigger, like wage garnishment, foreclosure or a seized vehicle, Iverson noted. The slew of moratoriums — like the Centers for Disease Control and Preventions’ pause on evictions — help explain the drop, he said.

But the CDC’s eviction pause is currently set to expire June 30 and a legal challenge to effectively end the pause sooner is pending before the Supreme Court.

Whenever the various moratorium expire, Iverson said he expects “bankruptcy rates to begin to rise as debtors start to face the music.”. Call Firebaugh & Andrews for your free consultation 734-722-2999

NEW YORK, April 05, 2021 — Epiq, a global technology-enabled services leader to the legal services industry and corporations, released its March 2021 bankruptcy filing statistics from its AACER bankruptcy information services business. March new filings spiked to 43,425 across all chapters. This was driven by 41,150 new non-commercial consumer filings, a 41% month over month increase and the largest single month of new filing activity since the pandemic started in March 2020. Commercial filings across all chapters also increased over February’s historic low with a total of 2,275 new filings, a 16% increase month over month.

“The decline in commercial chapter 11 filings is a direct reflection of both lenders and owners working with companies to protect their investments outside of a bankruptcy process,” said Deirdre O’Connor, senior managing director of corporate restructuring at Epiq.

“Bankruptcy filings in March saw large increases over February,” said Chris Kruse, senior vice president of Epiq AACER. “The vaccination roll-out and corresponding economic recovery is gaining momentum that will accelerate the return to pre-pandemic new bankruptcy filings levels. We approach the second quarter of 2021 cautiously anticipating the bankruptcy backlog that emerged during the pandemic may be peaking.”

There were 106,958 total new bankruptcy filings across all chapters for the first quarter of 2021, down from 177,245 in the same period in 2020. The two largest increases in March were in non-commercial consumer filings with 30,802 new Chapter 7 cases and 10,265 new Chapter 13 cases, increases of 9,939 and 1,945 over February 2021, respectively. Commercial Chapter 11 filings were down 9% over February with 384 new filings in March.

Some of the key provisions of the extended Act are the following:

• Increased eligibility for the Small Business Reorganization Act (SBRA) for businesses filing under Subchapter V of Chapter 11. The SBRA makes Chapter 11 a much more streamlined and inexpensive process. Through March 27, 2022, businesses with debt up to $7,500,000.00 are eligible to file a Subchapter V Chapter 11 case.
• Amending the definition of “income” in the Bankruptcy Code for Chapter 7 and 13 Debtors to exclude Coronavirus related payments for purposes of filing bankruptcy.
• Clarifying that the calculation of disposable income for purposes of confirming a Chapter 13 Plan shall not include Coronavirus related payments.
• Explicitly permitting individuals and families currently in Chapter 13 to seek payment plan modifications if they are experiencing a material financial hardship due to the Coronavirus Pandemic, including extending their payments for up to seven (7) years after the initial Plan payment was due.

All experts anticipate continuing financial fallout from the COVID Pandemic. The extended provisions of the CARES Act are intended to make the process smoother for those businesses and families forced to seek protection under the Bankruptcy Code.