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The CARES Act Provides Bankruptcy Relief to Individuals and Businesses

3/31/2020

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Authors: Andrew M. Thaler & Spiros Avramidis

​The Coronavirus pandemic has and will continue to cause financial hardship for many individuals and businesses in the weeks and months ahead.  The Coronavirus Aid, Relief and Economic Security Act known as the “CARES Act”, which was recently passed into law by Congress, provides financially distressed consumers and small businesses greater access to bankruptcy relief. Major takeaways from the CARES Act include:
  1. For filings under Subchapter V of Chapter 11 the eligibility threshold is increased from $2,727,625 to $7,500,000 for one year. Interestingly, there is no requirement that the debt relates to COVID-19 impact. Subchapter V is a new, less expensive, streamlined version of Chapter 11 which went into effect in February 2020.

  2. Coronavirus related payments from the federal government will not be treated as income for purposes of determining eligibility to file chapter 7 bankruptcy or the amount to be paid in chapter 13 plans. In rare circumstances, payments received from the Government in connection with COVID-19 may have made a debtor ineligible to quality for a chapter 7 in absence of this change.

  3. People presently in chapter 13 will be allowed to seek payment plan modifications if they are experiencing material financial hardship due to the Coronavirus, including extending payment for up to 7 years after their initial plan payment was due. Currently plans cannot exceed 5 years. 

However, the above forms of relief have a limited life and are set to expire on March 26, 2021. Although not directly related to bankruptcy, the CARES act also defers federal student loan payments for 6 months with no penalties to the borrower.

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