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Changes to the Bankruptcy Code Under the CARES Act

For those who were dealing with budgetary shortfalls, The CARES Act provided some much-needed relief. This relief not only made major changes to unemployment, extending coverage and providing extra relief for those who were laid off during the coronavirus quarantine, it also included changes to the bankruptcy code for those who were in the midst of bankruptcy when the coronavirus lockdown began.

In this article, we’ll discuss some of the major changes to the bankruptcy code that could affect your bankruptcy moving forward.

The Small Business Reorganization Act

The Small Business Reorganization Act (SBRA) was passed into law on February 19 of 2020. It effectively added a new chapter to the bankruptcy code. The SBRA was passed into law to reduce the financial costs and exposure of filing under Chapter 11.

Sub-Chapter 5 bankruptcy creates a streamlined process for small businesses to file bankruptcy and enacts a simpler standard for confirming a plan.

Under a Sub-Chapter 5 plan, a small business must file a Chapter 11 within 90 days of filing. The requirement to file a debtor statement is suspended and there is no official meeting of unsecured creditors. Plans will be confirmed if a small business pledges to contribute all disposable income for three to five years to make the plan payments.

To qualify for this streamlined process, the company had to owe less than $2,725,625 in both secured and unsecured debts. The CARES Act raises the debt limit to $7.5 million.

CARES Act for Individual/Consumer Bankruptcies

The CARES Act also provides for temporary changes in the existing Chapter 7 and Chapter 13 bankruptcy codes. These include:

  • The exclusion of any coronavirus-related payment from the income of the debtor to determine eligibility for Chapter 7 or calculating disposable income for payments for Chapter 13; and
  • The capacity for those who are already in a Chapter 13 bankruptcy to modify the plan based on material financial hardship resulting from the COVID-19 pandemic including extending the term of the bankruptcy to seven years (as opposed to five).

These changes apply to both chapters of consumer bankruptcy and will remain in effect until one year after the passage of The Cares Act (Feb 19, 2021).

Contact a Eugene, OR Bankruptcy Attorney Today

If you’ve been put into a difficult position because of the coronavirus lockdown, you do have options at your disposal. Most lenders appear willing to renegotiate terms of loans, but if you are in a situation where repaying your debts is not an option, you have better terms to file for bankruptcy now than we’ve ever had in the past. Call The Butcher Law Firm, LLC today to schedule an appointment. We can help.