The Coronavirus Aid, Relief, and Economic Security Act (CARES Act), signed by President Trump on March 27, 2020

The Coronavirus Aid, Relief, and Economic Security Act (CARES Act), signed by President Trump on March 27, 2020

We hope that all are safe and doing well in these uncertain times. The Coronavirus Aid, Relief, and Economic Security Act (CARES Act), signed by President Trump on March 27, 2020, contains several changes to the Bankruptcy Code, which are detailed below.
1) a) With respect to personal bankruptcy, the CARES Act amends the definition of “income” in the Bankruptcy Code for Chapters 7 and 13 cases so that coronavirus-related payments from the federal government will be excluded from being treated as income.   b) Coronavirus-related payments made by the federal government under the CARES Act will be excluded from the disposable income calculation for purposes of confirming a Chapter 13 Plan.          c) Finally, chapter 13 debtors will now be able to extend their plan payments for up to seven years instead of five years (under the prior law).

2) A. The Small Business Debtor bankruptcy provisions were modified such that small business debtors with debt up to $7.5 million will now be eligible to file for bankruptcy, rather than the old limit of $2,725,625 in debt.

B. Under the chapter 11 reorganization plan, small business debtors can now retain their equity or member interests in an LLC even if creditors are not being paid in full. The law requires a small business debtor to pay their “projected disposable income” over the next 3 to 5 years to creditors who were owed money at the time of the bankruptcy filing. Under the new law, a creditors’ committee is not formed, but the small business debtor will only have 90 days to file a reorganization plan, with very limited right to extend. Additionally, a “standing trustee” will be responsible for oversight of the small business debtor instead of a creditor committee. The standing trustee will be selected by the U.S. Department of Justice from a list of preapproved turnaround professionals.


People with questions about the CARES act should contact
Jim Shenwick   212-541-6224    jshenwick@gmail.com