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House leaders were scrambling to bring back enough legislators to form a quorum to pass a $2 trillion economic rescue package after a Republican lawmaker suggested he might object to holding the vote using a procedure that avoids putting members on the record, the Wall Street Journal reported. Rep. Thomas Massie (R., Ky.) told a local radio station that he would vote against the bill, and suggested that he might object to allowing the bill to pass by voice vote. If Massie forced a roll-call vote, the House would need a majority of the chamber — 216 votes — in order to proceed with a vote. Otherwise, voting would be delayed until enough lawmakers could return to Washington, D.C. “We have notified our Members of the possibility that the bill may not pass by voice vote,” the press office for House Majority Leader Steny Hoyer (D., Md.) said in a statement. “The Majority Leader’s Office has sent a notice to Members that if they are able and willing to be in Washington, DC by 10:00 a.m. tomorrow, they are encouraged to do so, while exercising all due caution.” House Minority Whip Steve Scalise (R., La.) echoed that sentiment. Many lawmakers had planned to stay away from the Capitol because of the risks of traveling during the coronavirus pandemic.

Congress’s federal aid package aimed at weakening the coronavirus pandemic’s economic sting has several features to help financially struggling individuals who turn to bankruptcy for relief, including a guarantee they won’t have to give up stimulus checks to pay off overdue bills, the Wall Street Journal reported. Most of the provisions in the stimulus bill brokered by Senate leaders this week are designed to prevent Americans from filing for bankruptcy protection. But the legislation, which was approved by the Senate on Wednesday and will be considered by the House today, also contains measures to protect struggling people and small businesses that do. One provision prevents people who file for bankruptcy protection from needing to turn over any federal money they receive from the stimulus package to cover past debts. The bankruptcy process requires borrowers to either turn over valuable possessions or pledge to repay a portion of their debt for several years before they can cancel the debt that remains.Nonpublic businesses with less than $7.5 million in debt can use the expedited process under the Senate legislation, up from the current threshold of about $2.8 million in debt. More than half of businesses that filed for chapter 11 protection between 2013 and 2017 had debt below $7.5 million and would benefit from the changes, according to University of Illinois Law Prof. Robert Lawless. Read more. (Subscription required.) 

Click here to read ABI’s press release on the CARES Act. 

Financial regulators yesterday urged banks to offer small-dollar loans, anticipating a growing need during the coronavirus pandemic, MorningConsult.com reported. Most banks have pulled back from offering small-dollar products to consumers, citing 2013 guidance from the Federal Deposit Insurance Corp. and Office of the Comptroller of the Currency that discouraged the practice. The agencies and the Federal Reserve Board have discussed issuing new guidance that encourage banks to re-enter the market, and agency staff said that more permanent and detailed guidance is still in the works. In a new interagency statement released yesterday, the latest from bank regulators as they react to the coronavirus crisis, the Fed, FDIC, OCC, National Credit Union Administration and Consumer Financial Protection Bureau reassured banks that they would “favorably consider” banks offering short-term unsecured credit products, which could include open-end lines of credit, closed-end installment loans or appropriately structured single payment loans.

The Senate included key provisions in the “Coronavirus Aid, Relief and Economic Security Act” (CARES Act) to provide financially distressed consumers and small businesses greater access to bankruptcy relief. The legislative package, which yesterday passed the Senate 96-0, provides a $2 trillion economic stimulus for U.S. industries and citizens faced with the challenges of the COVID-19 coronavirus. The legislation now goes to the House, where it is anticipated to be considered on Friday and signed shortly after by President Trump.

“Consumers and small businesses in dire need of financial relief due to the COVID-19 coronavirus pandemic will have greater access to the financial fresh start of bankruptcy thanks to this important legislation,” said ABI Executive Director Amy Quackenboss. “ABI commends the Senate’s expedited work, and we look forward to swift enactment of this important bipartisan legislation.”

Key bankruptcy provisions within Sect. 1113 of 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 of the legislation being enacted.

Additionally, Sect. 3513 of the legislative package 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.

“ABI members are ready to utilize these tools to help consumers and small businesses struggling with overwhelming debts due to the economic fallout of the pandemic,” Quackenboss said.

SBRA became effective on Feb. 19, adding a new section to chapter 11, subchapter V, to provide a better path for small businesses to successfully restructure, reduce liquidations, save jobs and increase recoveries to creditors. Subchapter V of the new law is based on the recommendations contained in the Final Report of ABI’s Commission to Study the Reform of Chapter 11, a project that was funded by ABI’s Anthony H.N. Schnelling Endowment Fund. The provision of the CARES Act to temporarily increase to the debt limit set forth in SBRA aligns closely with the recommendation of ABI’s Chapter 11 Reform Commission to permanently increase the debt eligibility limit to $10 million. For more information and resources on SBRA, please visit www.abi.org/sbra.

Chapter 7 bankruptcy relief, available to consumers and business debtors, involves the sale of a debtor’s nonexempt assets by a chapter 7 trustee, who uses the proceeds of the sales to pay creditors in accordance with the rules outlined in the Bankruptcy Code.

Chapter 13 bankruptcy relief, available only to consumer debtors, enables individuals with regular income to develop a plan to repay all or part of their debts. Under this chapter, debtors propose a repayment plan to make installments to creditors over three to five years.

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ABI is the largest multi-disciplinary, nonpartisan organization dedicated to research and education on matters related to insolvency. ABI was founded in 1982 to provide Congress and the public with unbiased analysis of bankruptcy issues. The ABI membership includes nearly 11,000 attorneys, accountants, bankers, judges, professors, lenders, turnaround specialists and other bankruptcy professionals, providing a forum for the exchange of ideas and information. For additional information on ABI, visit www.abiworld.org.

The $2 trillion stimulus package moving through Congress would allocate roughly $350 billion to guarantee loans for small businesses, a provision aimed at helping a vital sector of the economy but which could also test the ability of the Small Business Administration and the nation’s lenders to get money quickly to affected companies, the Wall Street Journal reported. Small technology companies and other startups funded by venture-capital partnerships, meanwhile, fear they may not be eligible for loans under the draft guidelines. The legislation approved by the Senate yesterday calls for the loans to be distributed using the existing framework of the SBA’s 7(a) program, the agency’s primary loan offering. The 7(a) program is a partnership between private financial lenders, which issue the loans, and the SBA, which guarantees them. The SBA currently guarantees about $25 billion in 7(a) loans to small businesses, and the additional $350 billion in lending authority would be on top of that. Businesses and nonprofits with fewer than 500 employees would generally be eligible for the loans, according to initial drafts of the legislation’s text that could be subject to revisions. The loans also would be open to self-employed and gig economy workers such as ride-hailing drivers.

In this unprecedented time, businesses across all industries are reporting cash shortages, leading many, including their vulnerable employees, to fear they will fail. While businesses of all sizes will suffer from the economic downturn, small businesses may have a more difficult time surviving because there is less room to downsize and there are fewer assets available to negotiate with creditors, according to a Law360 commentary. Almost miraculously for small businesses, in August 2019, President Donald Trump signed into law a bipartisan bill introduced by Reps. Ben Cline, R-Va.; David Cicilline, D-R.I.; Doug Collins, R-Ga.; and Steve Cohen, D-Tenn. — the Small Business Reorganization Act, or SBRA, of 2019, also known as Subchapter V of chapter 11 of the Bankruptcy Code. The new law, which was supported by the American Bankruptcy Institute, became effective in February this year, just as U.S. small businesses started to feel the effects of the economic downturn resulting from the novel coronavirus pandemic. The SBRA addresses many of the issues that made it difficult over the last two decades for a small business to take advantage of the traditional provisions of chapter 11 of the Bankruptcy Code. Under the law, a small business is defined as having no more than about $2,725,625 in secured and unsecured debts. Bankruptcy practitioners should focus on whether their clients fall within this threshold. If so, they can immediately use the new law as leverage in prebankruptcy negotiations with creditors. If a bankruptcy filing is necessary, the Official Bankruptcy Petition Form has been amended to include a box that should be checked if a company elects to proceed under Subchapter V of chapter 11. In preparation for a possible filing, practitioners should gather financial statements from their clients. These will be needed to verify their client is a “small business” as defined by the Bankruptcy Code. Read the full commentary. 

Get the information and analysis you need on SBRA by tapping in to ABI's "SBRA Resources" page. 

Senate leaders and the Trump administration neared bipartisan agreement Monday night on a massive stimulus bill that could inject $2 trillion into the economy to blunt the impacts of the coronavirus, the Washington Post reported. After hours of negotiations that wrapped up shortly before midnight, Senate Minority Leader Charles E. Schumer (D-N.Y.) and Treasury Secretary Steve Mnuchin prepared to leave the Capitol without a deal in hand, but optimistic they could announce one today. Mnuchin said that there are “still documents that are going to be reviewed tonight and are going to be turned around,” but added that he was “very hopeful” of a deal Tuesday morning. Overall, the legislation is aimed at flooding the economy with capital to revive businesses and households that have been knocked off course by fears about the virus’s rapid spread. Though details remained fluid, the legislation would include direct payments of $1,200 to many American adults and $500 to children, and would create roughly $850 billion in loan and assistance programs for businesses, states and cities. There would also be large spending increases for the unemployment insurance program, as well as hospitals and health-care providers that are being overwhelmed by the crisis. Democratic concerns have focused on a $500 billion funding program Republicans want to create for loans and loan guarantees, with some Democrats calling it a “slush fund” that lacks any oversight because the Treasury Department would have broad discretion over who receives the money. Asked about this yesterday, Trump responded, “I’ll be the oversight.”

Amid the current economic turmoil, there is a way to help them immediately: a national debt collection moratorium, according to a commentary by Profs. Adam Levitin of Georgetown University Law and Prof Satyam Khanna of the N.Y.U. School of Law. The single best thing Congress can do to stanch economic bleeding is to enact as stand-alone legislation a national moratorium on collections against small businesses, according to Levitin and Khanna. Small businesses are already laying off employees in response to the drop in demand because of the coronavirus. These layoffs risk sending the economy into a downward spiral of decreased demand, defaults and further layoffs within weeks or even days. To limit the damage, small businesses need help now. Many of the stimulus programs being considered by Congress are important and necessary. However, it could be months before these lifelines reach businesses. It will take Congress time to finalize the terms of any rescue package. Then, it will take time to build the administrative infrastructure for any new federal loan or reimbursement program, and even more time to process loan applications or reimbursement claims. The moratorium proposed by Levitin and Khanna would include a freeze on foreclosures, evictions, repossessions, utility disconnects, garnishments, default judgments and concessions of judgments, administrative offsets and negative credit reporting. According to a recent survey by the Federal Reserve banks, 70 percent of small employers have outstanding debt. The only way businesses can maintain employment is if they have some cushion against these coming obligations, according to the commentary.

As small businesses such as restaurants, bars, gyms and hair salons are forced by the coronavirus pandemic to go dark and lay off millions of employees, frantic owners are desperate for government aid to help them salvage enterprises that can’t survive for long without customers, the New York Times reported. But the main federal lifeline offered so far — low-interest disaster loans — is unappealing to many people running on thin margins and leery of taking on debt they can’t afford to repay. Congress authorized up to $7 billion early this month for small business disaster loans through the Small Business Administration (SBA). Unlike the agency’s flagship loans, which are made by banks, disaster loans are issued directly by the government. Red tape has slowed the process. To make businesses in their state eligible for the loans, each state’s governor had to submit a formal disaster declaration request to the agency. It took until Sunday for all 50 states to have their applications filed and approved. SBA representatives declined to say how many loan applications the agency has received or approved. In past disasters, it has typically taken the agency at least two weeks to make loan decisions. Companies with up to 500 workers can borrow as much as $2 million at a 3.75 percent interest rate, which is far lower than the cost of typical small business loans. But defaulting can have catastrophic consequences: The agency asks those seeking more than $25,000 — and most small business loans are at least that much — to put up collateral, preferably real estate. That’s a standard term on nearly all SBA loans.

Some entrepreneurs hurt by the coronavirus shutdown say they’re facing delays tapping emergency loans from the Small Business Administration, even as the White House calls for billions more in funding for small businesses, the Washington Post reported. The SBA announced a coronavirus disaster loan program on March 12, offering up to $2 million per business to help small firms overcome the loss of revenue amid the health crisis. The SBA cautioned at the time that each state must seek and receive a disaster declaration from the agency before it can start lending in that state. Entrepreneurs say that process, required by law, is holding things up. The dire situation some businesses are facing underscores how close to the bone many entrepreneurs function. A few days’ delay wouldn’t matter to a large corporation, but it can make or break a small business, they said.