The National Bankruptcy Conference (NBC) said that bankruptcy protections should be broadened for consumers and businesses to help ameliorate the financial damage stemming from the coronavirus, WSJ Pro Bankruptcy reported. To blunt the economic fallout from the pandemic, special bankruptcy protections should be made available to more small businesses and bankruptcy courts should have more leeway to aid struggling consumers, according to the NBC, an advisory body made up of scholars, lawyers and judges. The NBC’s recommendations, made in a letter on Sunday to top congressional leaders, is an acknowledgment from leading bankruptcy professionals that current restructuring laws aren’t equipped to handle the current pandemic. The letter comes as the Senate debates a rescue package of at least $1.6 trillion to help businesses and the public. A version of the legislation that failed on Sunday would provide $350 billion for small business loans that may be forgiven if companies use the money to keep workers on payroll, as well as direct payments to households that an outside group has estimated could cost $300 billion. The letter conceded that “even at its best,” U.S. bankruptcy law won’t prevent the loss of jobs and investments for borrowers and creditors stemming from the Covid-19 disease. The pandemic inevitably “will cause many bankruptcies,” despite extraordinary government measures, the letter said. The NBC recommended that Congress provide individuals and small businesses relief from financial obligations, at least temporarily, “to avoid massive numbers of both bankruptcies and economically untenable foreclosures.” A streamlined reorganization process designed to make bankruptcy easier and quicker for small businesses went into effect last month but only covers companies with no more than $2,725,625 in debt. The NBC recommended that increasing the debt threshold to $7.5 million or higher would bring relief to the “many thousands” of small businesses that will likely seek to reorganize and their owners, suppliers, employees and lenders. The NBC said the bankruptcy code’s chapter 13, which applies to individuals, should be modified to provide more than just allowing consumers to save their homes and motor vehicles from foreclosure. Consumer bankruptcy laws should allow for repayment plans to be modified “if a Covid-19 dislocation affects their income and ability to perform,” according to the letter. Read more.
Click here to view a full copy of the NBC letter.
