President Donald J. Trump on Friday afternoon signed the “Coronavirus Aid, Relief and Economic Security Act” (CARES Act) into law with provisions to provide financially distressed consumers and small businesses greater access to bankruptcy relief. The legislative package, which quickly passed the House of Representatives on a voice vote earlier on Friday and 96-0 in the Senate on Wednesday, provides a $2 trillion economic stimulus for U.S. industries and citizens faced with the challenges of the COVID-19 coronavirus.
“ABI commends Congress and the President for their prompt action on this stimulus package to provide needed financial relief due to the COVID-19 coronavirus pandemic,” said ABI Executive Director Amy Quackenboss. “Consumers and small businesses will have greater access to the financial fresh start of bankruptcy thanks to this important legislation.”
Key bankruptcy provisions within the CARES Act include:
- Amending the Small Business Reorganization Act of 2019 (SBRA) to increase the eligibility threshold for businesses filing under new subchapter V of chapter 11 of the U.S. Bankruptcy Code from $2,725,625 of debt to $7,500,000. The eligibility threshold will return to $2,725,625 after one year. The increased debt limit for struggling small businesses to access subchapter V reflects recommendations of ABI’s Commission to Study the Reform of Chapter 11.
- Amending the definition of “income” in the Bankruptcy Code for chapters 7 and 13 to exclude coronavirus-related payments from the federal government from being treated as “income” 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 years after their initial plan payment was due.
The bankruptcy provisions of the CARES Act listed above sunset within a year.
Additionally, the law provides temporary relief for federal student loan borrowers by requiring the Secretary of Education to defer student loan payments, principal, and interest for 6 months, through September 30, 2020, without penalty to the borrower for all federally owned loans. This provides relief for over 95 percent of student loan borrowers.
Click here for ABI's full press release.
