Senate Passes Coronavirus Stimulus Bill with Provisions Providing Greater Access to Bankruptcy Relief For Distressed Consumers and Small Businesses

Alexandria, Va. — 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 approved on Friday and signed shortly after passage 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.

 

Chapter 7 & Chapter 13 Bankruptcy

Bankruptcy - Business Person holding an empty wallet. Man showing empty wallet by showing the inconsistency and lack of money and not able to pay the loan and the mortgage. The holiday season for many of us is a time to reflect and reset our goals for the upcoming year and for many of you those goals involve getting your finances straight in the new year.  Making ends meet is difficult enough. However, there are many people who struggle under an extremely heavy debt load, and getting out from under that financial burden is or should be a top priority. If you are considering debt relief options, bankruptcy may be a great option to get yourself back on track. Chapter 7 bankruptcy is an option where those with little or no exempt assets can reset their situation and discharge their debt in as little as 4 months from filing without paying unsecured debts off. For those who may not qualify, Chapter 13 is a great option as it allows you to come up with a repayment plan to set finances straight over 3-5 years.  This allows most people the ability to catch up on secured debts such as mortgages and car payments and paying a minimum amount to unsecured creditors.  The great advantage to Chapter 13 is that you control the repayment to creditors utilizing the Bankruptcy Code at no additional interest.  This compared to continue to struggle with credit card payments and other options that bury you in interest and fees that at standard pace set payments out at 10 or more years. For those who are considering their debt options in the New Year, bankruptcy certainly deserves some thought. While bankruptcy is rarely anyone's first choice of action, it is a valuable tool that can help regain financial stability, and return some normalcy to your life. Having a knowledgeable and experienced Bankruptcy attorney on your side to review your situation and guide you through the process is invaluable. Discuss your circumstances with us and let us help determine your best course of action. It is truly a New Year's resolution worth keeping.

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Even though you have received a contract to purchase your property there are a number of things you need to do to be prepared to close the deal.  For those who do not regularly participate in real estate transactions, the list can be particularly daunting.  The contract lays out several obligations of the seller which may be apparent in the contract and many that are not specifically mentioned in the contract such as:

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