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Cares Act

Debtors Find Relief with the CARES Act

For individuals and businesses seeking relief from bankruptcy due to COVID-19-related factors, the CARES Act or Coronavirus Aid, Relief, and Economic Security Act, provides economic assistance. Today, we go over this $2 trillion economic relief package and what kind of assistance it offers debtors.

What Is the CARES Act?

The CARES Act was enacted on March 27, 2020 and provides relief for debtors struggling with financial hardship due to COVID-19. According to the United States Department of the Treasury, it “provides fast and direct economic assistance for American workers and families, small businesses, and preserves jobs for American industries.”

The act also made some amendments to Chapter 11 bankruptcy requirements and provides short-term relief to individual debtors under Chapter 7 bankruptcy and Chapter 13 bankruptcy. These changes are temporary, and, as of this writing, will expire on March 27, 2021.

What Kind of Relief Does the CARES Act Offer Individuals?

The CARES Act provides many Americans with an Economic Impact Payment of up to $1,200 per adult for individuals making less than $99,000 a year. Each family also receives a $500 per child (ages 17 years old or younger) stimulus.

What Kind of Relief Does the CARES Act Provide for Small Businesses?

The Paycheck Protection Program was created under the CARES Act as well, which the U.S. Department of the Treasury shares will provide small businesses with necessary funds to “pay up to eight weeks of payroll costs including benefits.” The funds can be put towards additional expenses such as rent, utilities, and interest rates on mortgages.

CARES Act Bankruptcy Relief for Debtors

The CARES Act provides short-term relief to Americans filing for Chapter 7, Chapter 11, and Chapter 13 bankruptcy. When determining a debtor’s bankruptcy eligibility, the Economic Impact Payment is excluded from an individual’s monthly income. This stimulus payment will also be excluded from Chapter 13 filings, when deciding a debtor’s disposable income. The purpose of this relief is to prevent stimulus payments from influencing a debtor’s bankruptcy eligibility.

The CARES Act will also provide additional relief to Chapter 13 debtors if they experienced “material financial hardship as a direct or indirect result of COVID-19.” With high unemployment rates and stay-at-home orders, it is likely that most debtors will meet this court-issued standard. Under this revised provision, Chapter 13 debtors may extend their plan for up to seven years from when their first payment was due under their confirmed plan.

Amendments for Debtors Filing Under Chapters 7 and 13

The CARES Act made amends to the Bankruptcy Code to assist Chapter 7 and Chapter 13 debtors for up to a year as follows:

  • The first amendment states that any COVID-19-related payments received under federal law will be excluded as a determining eligibility income factor when the individual files for Chapter 7 or 13 bankruptcy.
  • The second amendment excludes any COVID-19-related payments made under federal law from the calculation of disposable income to confirm a Chapter 13 wage earner plan.
  • The third amendment permits individuals and families to seek amendments to their confirmed Chapter 13 wage earner plan if they are experiencing financial constraints due to COVID-19, which may include extending their payments for up to seven years after their initial payment is due.

Amendment to Chapter 11’s Small Business Reorganization Act of 2019

Under the CARES Act, a subchapter of Chapter 11 of the Bankruptcy Code known as the Small Business Reorganization Act of 2019 (SBRA) has also been amended.

Before SBRA, small businesses had to decide between Chapter 7 liquidation or Chapter 11 reorganization when filing for bankruptcy. This was an expensive and time-consuming process that often resulted in liquidation regardless. Under SBRA, small business debtors with less than $2,725,625 in debt get a third option: a combination of Chapter 7 and Chapter 11 to lower costs and streamline the process.

The CARES Act increases the eligibility amount for filing under the SBRA to $7,500,000 for a period of one year until March 27, 2021. This gives many small businesses access to SBRA, reducing the possibility of liquidation, and, ideally, saving more jobs.

Consult with an Experienced Bankruptcy Lawyer

The CARES Act provides additional support to individuals and businesses in need during COVID-19, however it is beneficial to speak with an experienced bankruptcy attorney to determine what impact this act could have on your situation.

Contact us online or feel free to give us a call at (508) 926-8833 for help with your bankruptcy case.