Prof. Ted Janger of Brooklyn Law School sent Prof. Bob Lawless of the University of Illinois College of Law a proposal for a small change to the Bankruptcy Code that might significantly help small businesses affected by the COVID-19 pandemic, according a post by Lawless in the Credit Slips blog. His idea merits consideration: "In the wake of COVID-19, Congress should raise the debt ceiling [currently within the new Small Business Reorganization Act] to $10 million to help more small businesses and soften the inevitable fallout that will come from COVID-19 related business disruptions," according to Janger. Janger's proposal highlights that COVID-19 bankruptcies are likely to be different from the most recent crop of media and manufacturing bankruptcies. "[COVID-19 bankruptcies] will result from a temporary but brutal cash flow hit on otherwise viable businesses. This is precisely the situation chapter 11 handles best — recapitalization of a viable, but financially distressed business," Janger writes to Lawless. Prof. Lawless said that he calculated that a $10 million threshold will raise eligibility from 42% to 59% of all cases. "Congress might even consider a temporary increase that is even higher until the crisis passes," Lawless writes.
