H.R. 133, Consolidated Appropriations Act

H.R. 133, the Consolidated Appropriations Act of 2021, is a proposed $2.3 trillion spending bill that combines $900 billion in stimulus relief for the COVID-19 pandemic in the United States with a $1.4 trillion omnibus spending bill for the 2021 federal fiscal year. On Dec. 21, 2020, by a vote of 92-6, the Senate approved the House amendment to the Senate amendments, thus formally resolving the two chambers’ differences on the bill. On Dec. 24, 2020, H.R. 133 was formally presented to the President for signature; on Dec. 27, 2020, the President formally signed H.R. 133 into law.

The bankruptcy provisions to this bill are contained in two different sections of the legislation. Title II, Section 320; and Title X. These provisions amend the Coronavirus Aid, Relief, and Economic Security Act (also known as the CARES Act), which was signed into law by President Trump on March 27, 2020.

The amendments in Title II primarily center around the Paycheck Protection Program (PPP), which was established as part of the CARES Act and allowed small businesses to apply for private low-interest loans to be administered by the U.S. Small Business Administration (SBA) to cover payroll and other expenses. The loan may be partially or fully forgiven if certain conditions are met.

In the months since the passage of the CARES Act, litigation has arisen all over the country regarding whether debtors in bankruptcy are eligible to obtain PPP loans. The SBA has taken the position that being a debtor in bankruptcy automatically disqualifies a business from PPP eligibility. H.R. 133 attempts to resolve this controversy by permitting debtors to seek bankruptcy court approval to obtain a PPP loan, provided the debtor meets the conditions for obtaining credit under § 363 of the Bankruptcy Code and any other applicable law.

The catch is that the bill does not take effect until “the date on which the [SBA] Administrator submits to the Director of the Executive Office for the United States Trustee a written determination” that the debtor would otherwise be eligible for a loan under § 7(a) of the SBA Act. This still leaves the potential for debtors to continue being denied for PPP loan eligibility, however, as the SBA has previously taken the position that the SBA Act automatically disqualifies bankrupt debtors from eligibility.

A few other key provisions under Title II are as follows: [1]

• PPP loans obtained after a bankruptcy filing are entitled to administrative payment priority; and
• While administrative claims typically must be paid in full promptly following confirmation of a plan under chapter 11, the bill allows subchapter V debtors, family farmers and fishermen under chapter 12, and individual debtors, to repay the loans over time according to the terms of the loan.

The remaining bankruptcy provisions are found in Title X, which include:

• Chapter 13 debtors may obtain a discharge on a residential mortgage at the conclusion of their plan, even if they missed up to three mortgage payments that were due on or after March 13, 2020 (provided the missed payments were caused by the COVID-19 crisis and the debtor has entered into a modification or forbearance agreement with the mortgage-holder or -servicer);
• Lenders are prohibited from discriminating against debtors in bankruptcy when making PPP loans;
• Bankruptcy courts are authorized to extend the 60-day period that subchapter V small business debtors have to satisfy post-petition rent obligations on unexpired leases of nonresidential property to 120 days. To qualify, the debtor must have experienced material financial hardship due to COVID-19;
• Debtors that receive this relief may also repay the delayed administrative rent over time in accordance with their subchapter V plan, rather than repay it in full upon plan confirmation;
• Utility companies are prohibited from terminating service for individual debtors who cannot provide adequate assurance of payment if the debtor becomes current on the debt during the first 20 days of the bankruptcy case and remains current;
• Certain late rent and vendor payments made in accordance with forbearance agreements that debtors executed with landlords or vendors on or after March 13, 2020, for amounts due before March 13, 2020, are now exempt from preference avoidance; and
• Late charges and interest payments remain subject to avoidance as preferences if they are more than a debtor would have incurred if the debtor had made all of its payments in a timely manner.

All of these modifications to the Bankruptcy Code sunset after one year, except the following:

• The provisions related to PPP loans, lease payments by subchapter V debtors and preference avoidance sunset after two years, meaning they will be effective to cases filed before the enactment of this bill, but will expire in two years; however
• These provisions will continue to apply even after the two-year expiration to all cases that are filed before the second anniversary of the enactment of this bill.