COVID-19 and the Bankruptcy Code: What Could Congress Do Next?

On March 27, 2020, Congress passed the “Coronavirus Aid, Relief, and Economic Security Act” (CARES Act)[1] in order to “provide emergency assistance and health care response for individuals, families, and businesses affected by the 2020 coronavirus pandemic.”[2] The CARES Act made several revisions to the Bankruptcy Code, including (1) increasing the unsecured debt limit for small business debtors from $2.7 million to $7.5 million, (2) excluding the tax rebates paid to individuals from the definition of “current monthly income” and the chapter 13 means test, and (3) permitting debtors, who confirmed plans prior to the enactment of the CARES Act, to modify their plans and extend their repayment period for up to seven years. These revisions are temporary and will sunset a year after the enactment of the CARES Act. While these temporary revisions to the Bankruptcy Code will provide some bankruptcy relief to certain individuals and small businesses, the revisions provide no additional bankruptcy relief for a wide variety of consumer debtors and larger businesses that are also struggling due to the COVID-19 pandemic.

Although a large group of debtors were left with no additional bankruptcy remedies through the CARES Act, it is possible that Congress will provide additional changes to the Bankruptcy Code in subsequent legislation. Top members of Congress agree that additional legislation is necessary in order to reboot the American economy, which has been devastated by the COVID-19 pandemic.[3] What could Congress do to provide additional relief through use of the Bankruptcy Code that the CARES Act did not already cover?

Legislation already introduced in Congress may give us some insight into potential revisions to the Bankruptcy Code aimed at providing greater relief to individual debtors. Take, for example, the “Taking Responsibility for Workers and Families Act,” which was introduced in the House on March 23, 2020.[4] This bill, as introduced, provides very favorable relief to debtors and includes (1) an increase in the homestead exemption under § 522(1)(A) of the Bankruptcy Code from $15,000 to $100,000;[5] (2) allowing debtors to obtain a chapter 13 discharge under § 1328 of the Bankruptcy Code even if the debtors failed to make up to six payments to a holder of a debt secured by real property;[6] and (3) permitting debtors to obtain a chapter 13 discharge if the debtors (a) have made payments under a confirmed plan for at least one year, and (b) are experiencing a loss of income and/or increase of expenses due, directly or indirectly, to the [Covid-19] pandemic.[7]

Another bill Congress may use to provide bankruptcy relief to debtors during this pandemic is H.R. 5899, which was introduced in the House on Feb. 13, 2020. This bill would permit debtors to discharge any student loan debt that arose after the date of the bill’s enactment.[8] Admittedly, this bill would not help the majority of Americans who have already incurred student loan debt.[9] However, both the House and the Senate have introduced the “Student Loan Debt Relief Act of 2019,” which may provide bankruptcy relief to all student loan debtors.[10] This act, if passed, would strike paragraph (8) from § 523(a) of the Bankruptcy Code[11] and permit debtors to obtain a discharge pursuant to § 1328(a) of the Bankruptcy Code without any limitation as to when the student debt arose.

Although these provisions may not become law, they are a springboard Congress could look to for additional bankruptcy relief in the next stimulus bill(s). The proposed legislation discussed above involves revisions to the Bankruptcy Code for the benefit of consumer debtors. However, there is little pending legislation that would provide bankruptcy relief to large business debtors. Ultimately, legislation will need to be drafted to provide additional bankruptcy relief for businesses large and small.