The "Bankruptcy Administration Improvement Act of 2020" (S. 4996) was signed into law yesterday by President Donald Trump. The bill extends 25 temporary bankruptcy court judgeships for a further five years in an effort to ensure the integrity and effectiveness of the country's insolvency system during a period of increased filings by large corporations in the wake of the COVID-19 pandemic. Among others, the extensions apply to all seven temporary seats on the Delaware bankruptcy bench, one of the busiest jurisdictions in the country for complex chapter 11 cases which has only a single permanent seat. The new law replaces the current fee schedules with a simplified and lower fee structure that will sunset in five years. The new structure reduces quarterly fees paid by nearly all chapter 11 debtors by 18 to 75 percent. Click here to read the bill text.
Trump administration lawyers have concluded that it would be illegal to forgive all or some of Americans’ student debt through an executive action — as congressional Democrats have urged the incoming Biden administration to do — arguing that such a move would require Congress to pass a law, the Wall Street Journal reported. Education Department lawyers lay out their reasoning in a memo dated yesterday to Betsy DeVos, who resigned last week as education secretary. Congressional Democrats and progressive groups have urged President-elect Joe Biden to forgive most or all of the $1.6 trillion in federal student debt unilaterally in his first 100 days in office. They argue that existing law authorizes the executive branch to forgive student debt without any action from Congress. “We believe the Secretary does not have the statutory authority to cancel, compromise, discharge, or forgive, on a blanket or mass basis, principal balances of student loans, and/or to materially modify the repayment amounts or terms thereof,” Reed Rubinstein, the Education Department’s principal deputy general counsel, wrote in the memo to Mrs. DeVos. Mr. Rubinstein’s tenure will end along with those of other appointees when the new administration takes office Jan. 20. Biden has said that he supports writing off $10,000 in student debt for every borrower as part of a package of measures to help households financially during the pandemic. About 43 million Americans owe $1.6 trillion in federal student loans. But Biden has said that he questions the executive branch’s authority to forgive student debt unilaterally. Some congressional Democrats have urged Mr. Biden to forgive $50,000 in student debt for all borrowers.
The U.S. government today is set to re-open its signature small business pandemic aid program with $284 billion in new funds and revamped rules that aim to get cash to the most needy businesses while stamping out fraud and abuse, Reuters reported. The Small Business Administration (SBA) announced on Friday that it would launch a third round of the Paycheck Protection Program (PPP) this week, starting with small community financial institutions on Monday, and larger lenders in coming days. By prioritizing smaller lenders, the SBA hopes to address criticism from lawmakers that minority and women-owned businesses did not get enough money during the first two PPP rounds last year compared with bigger businesses. Administration officials told reporters on Friday they expected the funds would be sufficient to meet demand. Under the program, lenders on behalf of the government distribute loans that can be forgiven provided the cash is spent on eligible costs, such as payroll and rent. To date, the PPP has distributed $525 billion through more than 5 million loans. Congress authorized the new funds last month as part of another pandemic stimulus package which also loosened PPP rules on who can get cash and what it can be spent on. Among the key changes, companies which took cash during the first two rounds will be allowed a second PPP loan provided they can show a 25% hit to their revenues. To address worries over fraud, the SBA is also introducing new due diligence checks. While lenders say the changes are positive, some are worried they may cause some initial snags, especially as the updated application forms and SBA rule guidance were only released on Friday.
Senate Democratic Leader Charles Schumer (D-N.Y.) said on Wednesday that passing legislation to provide $2,000 stimulus checks will be one of the first orders of business once Democrats take control of the chamber on Jan. 20, The Hill reported. "One of the first things I want to do ... is deliver the $2,000 checks to the American families," Schumer told reporters during his first press conference after Tuesday's runoffs elections in Georgia that put Democrats on track to regain control of the Senate for the first time since 2014. The Senate appears headed to a 50-50 split, with Vice President-elect Kamala Harris poised to cast any tie-breaking votes. Schumer declined to provide any details on how he would try to pass legislation for the $2,000 checks, such as whether it would be a stand-alone bill, part of a broader coronavirus relief package or the first measure called up for a vote.
House Democrats vowed yesterday to renew efforts on economic assistance — including state and local aid and potentially $2,000 checks to individuals — in the 117th Congress that is now getting underway, the Washington Post reported. House Democratic Caucus Chairman Hakeem Jeffries (D-N.Y.) said that the $2,000 checks amount to “unfinished business that should be continued as part of our effort to provide additional relief to the American people.” The House last week passed legislation providing for $2,000 relief checks, but Senate Majority Leader Mitch McConnell (R-Ky.) rejected the measure even though President Trump was demanding it. Congress earlier approved a $900 billion coronavirus relief bill that included $600 checks, legislation that Trump ultimately signed even while criticizing the size of the checks as “measly." Democrats anticipate writing a new relief bill once President-elect Joe Biden is sworn in Jan. 20. Its contours are uncertain, however, and the path forward will depend on the outcome of two Senate runoffs in Georgia on Tuesday that will determine which party controls the Senate.
With his presidential inauguration just weeks away, Joseph R. Biden Jr. is confronting an economic crisis that is utterly unparalleled and yet eerily familiar. Millions of Americans are out of work, small businesses are struggling to survive, hunger is rampant, and people across the country fear getting kicked out of their homes, the New York Times reported. The moment was similarly perilous exactly 12 years ago, when Biden was the vice president-elect and preparing to take office. “I remember the utter terror,” said Cecilia Rouse, who was an economic adviser in the Obama White House and has been chosen to lead Mr. Biden’s Council of Economic Advisers. The $900 billion pandemic relief plan that moderate lawmakers powered through Congress last month provides the incoming administration with some breathing room. This second tier of aid will deliver $600 stimulus checks, assist small businesses and extend federal unemployment benefits through mid-March. But as Biden has made clear, it is simply a “down payment” — a brief bridge to get through a dark winter and not nearly enough to restore the economy’s health.
Senate Majority Leader Mitch McConnell (R-Ky.) dealt a likely death blow yesterday to President Donald Trump’s bid to boost coronavirus aid to Americans, declining to schedule a swift Senate vote on a bill to raise relief checks to $2,000 from $600, Reuters reported. McConnell said on the Senate floor that a bill passed by the Democratic-controlled House of Representatives, which sought to meet fellow Republican Trump’s demands for bigger checks, “has no realistic path to quickly pass the Senate.” McConnell, who controls the Senate’s agenda and opposes the increase in aid, had introduced a competing bill combining the $2,000 checks with provisions unacceptable to Democrats, who could block it. With a new Congress set to be sworn in on Sunday, the action appears all but certain to kill the effort to increase the amount of the $600 checks Congress has already approved.
On December 23, 2020, Congress passed the Combined Consolidated Appropriations Act, 2021, which includes the Coronavirus Economic Relief for Transportation Services Act and Coronavirus Response and Relief and Relief Supplemental Appropriations Act (H.R. 133) (the "CARES ACT II") , which provides for another $284.45 billion in "PPP Second Draw Loans" ("PPP III Loans"). While over four months had passed since the lapse of the prior PPP loan program, struggling businesses throughout the U.S. breathed an audible sigh of relief. As CARES Act II contained numerous provisions related to stimulus and aid availability separate from PPP III Loans. Despite threats of veto, President Trump signed the bill on December 27, 2020. Did CARES Act II "fix" the issue and definitively do away with any future litigation in this area? Of course not. Instead, there is a mixed bag in CARES Act II — some good news for some debtors, bad news for other debtors, and a pretty much sure bet for future litigation concerning the latter. Read the full commentary.
As the pandemic intensified, even companies with enough cash to try to reorganize in court lost faith that they’d be able to stay open after cutting their debts, Bloomberg News reported. On March 28, Carol and Henry Huffman of Pike Creek, Delaware, simply closed down their specialty catering shop, the Cheese Chalet, and walked away rather than seek court protection from creditors and chance a reopening. “Waiting was not an option,” Carol Huffman said. “They kept saying there might be another shutdown in the fall.” Hundreds of thousands of small business owners made the same decision in 2020, according to researchers. Collectively, they laid off millions of employees and walked away from small stores, restaurants and other enterprises in a wave of silent closures. Next year may be different if the widespread rollout of a vaccine gives entrepreneurs hope that cutting debt under court oversight is once again worth it. “Bankruptcy requires people to be hopeful that there will be a better future on the other side,” said Prof. Jared Ellias of the University of California's Hastings College of the Law. “I suspect you will see a serious bounce in Q1 and Q2 especially. The driver isn’t going to be the pandemic. The driver is going to be the vaccine.” A spate of shutterings would typically cause bankruptcies to surge, according to a paper by academics at the University of Illinois, Brigham Young University and Harvard Business School. But in 2020 they declined as some business owners walked away while others received enough government support to delay reorganizations. Through November, 20 percent fewer business cases were filed compared to the same period last year, according to statistics from the American Bankruptcy Institute. A new provision of the bankruptcy code, known as Subchapter V, started this year and was designed to make the process cheaper and easier for companies with less than $7.5 million in debt. So far, about 1,300 such cases have been filed, said Ed Flynn, a consultant with ABI who studies bankruptcy statistics. Some small companies want to wait before filing for bankruptcy under Subchapter V rules because the process comes with tight deadlines for proposing a debt-cutting plan, said Matthew C. Zirzow, a bankruptcy lawyer in Las Vegas who led two companies through the process in Nevada and has many more clients waiting to file. “They don’t want to file Subchapter V too soon,” he said in an email. “It may have a great business when things bounce back that is well worth eventually reorganizing, but who is to say when that will happen?” Banks and landlords have been far more willing to work with struggling firms during the pandemic, keeping some out of bankruptcy for longer, Ellias said. “The normal mechanisms of debt collection are not working because banks are holding off on collecting,” he said.
Senate Majority Leader Mitch McConnell (R-Ky.) blocked an attempt by Democrats yesterday to hold an immediate vote on increasing stimulus checks to $2,000 from $600, leaving the fate of the measure unclear as President Trump continued to demand the larger payouts and more Republicans publicly endorsed the idea, the New York Times reported. Instead, McConnell provided vague assurances that the Senate would “begin the process” of discussing $2,000 checks and two other issues that Trump has demanded lawmakers address: election security and removing legal protections for social media platforms. McConnell would not say whether he planned separate votes on the three issues or if he would bring them for a vote on the Senate floor at all. But in a sign of how he might approach them, the majority leader introduced new legislation yesterday afternoon combining the $2,000 checks, election security and social media provisions into one bill, which would most likely doom the effort. The sudden talk of election security complicates matters, given that Trump continues to claim, without evidence, that voter fraud cost him re-election. Democrats would undoubtedly resist anything that could be seen as trying to undermine the outcome of the election.
