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CARES Act- Provisions Related to Bankruptcy

The CARES Act currently awaiting House approval contains several bankruptcy-related provisions that should provide relief to businesses seeking bankruptcy protection.

In early 2020, a new Subchapter to Chapter 11, known as Sub Chapter V, became effective. Under this the new code section, small business debtors could file under Chapter 11 to reorganize and get a fresh start. The main sticking point with debtors seeking relief under Chapter 11 has always been the cost and time associated with the process that often resulted in debtors converting to Chapter 7 and liquidating.

Sub Chapter V, as enacted, allows for a streamlined process with less administration and defined timelines for the debtor to propose a plan of reorganization. Early on, one of the complaints was that the debt limit to be eligible to file under Sub Chapter V was set at $2.7 million. The CARES Act will expand that limit for one year to $7.5 million, which should enable a significant number of small business debtors to realign their affairs and get a fresh start.

For more information or questions, please contact a member of Withum’s Bankruptcy Team.

Other notable provisions eliminate government coronavirus payments from inclusion as income under Chapter 7 or 13 filings, and allow for existing Chapter 13 debtors to seek modifications to their plan. These provisions will all sunset one year after enactment. The Act also provides relief to individuals with student loans, granting them a 6 month payment holiday.

As we wait for the President and House to sign off on the bill, it bears watching over the next few days as individuals and businesses look to use all of the tools at their disposal to reset, reorganize and restart their lives.

The Withum Bankruptcy Team is available to answer your questions as you consider your options.

SBA Financial Assistance Guidance and Loan Resources

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