Individuals and businesses facing financial hardship because of the COVID-19 pandemic can access enhanced levels of bankruptcy relief thanks to the second economic stimulus legislation. Passed at the end of 2020, the Consolidated Appropriations Act (CAA) is a follow-up to the benefits of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). This new COVID-19 bill also provides additional bankruptcy relief.
The CAA extended and expanded financial benefits and changed certain provisions of bankruptcy law. As with most federal legislation, the new regulations are highly technical and sophisticated. It is easy to misunderstand the rules and run afoul of the rules. Many of these provisions will sunset in a year or two. A Georgia bankruptcy attorney can explain the CAA and evaluate the options available for your situation.
How the Consolidated Appropriations Act Helps Distressed Businesses
The CAA states that the act of filing for bankruptcy does not disqualify businesses from receiving certain benefits under the CARES Act. Without this provision, some companies would not be able to access relief under the CARES Act, which would result in some of the most hard-hit businesses being ineligible for desperately-needed assistance.
It will be possible for some bankruptcy debtors to get PPP loans, but their situations must meet multiple conditions. First, the Small Business Administration (SBA) Administrator will have to send a directive to the U. S. Trustee’s Director of the Executive Office, stating that bankruptcy debtors who otherwise qualify can apply for PPP Loans. Second, the rule change only applies to specific categories of debtors, including Chapter 12 family farmers, Chapter 13 self-employed debtors, and Subchapter V small businesses.
Payments Within 90 Days Prior to Filing for Bankruptcy Protection
Typically, a trustee in a bankruptcy case or a debtor-in-possession can go back and recover some types of payments the debtor made during the 90 days immediately before filing for bankruptcy. This standard rule protects creditors from the debtor making substantial payments to some creditors while not paying others.
The CAA temporarily modified this rule in limited circumstances. Commercial landlords can work out financial arrangements with their tenants without worrying about the trustee recovering the payments if the tenant debtor previously deferred the rent payments and then made some payments during the 90-day period before filing for bankruptcy.
Bankruptcy Code Changes That Benefit Financially-Strapped Individuals
As with commercial landlords, the CAA expressly prohibits the denial of CARES Act relief to individuals merely because they file for bankruptcy. Also, the CAA provides the possibility of getting PPP loans to debtors who own eligible businesses, including the self-employed.
If a Chapter 13 debtor experienced financial hardship because of the pandemic, the bankruptcy court is allowed to grant a discharge, even if the debtor defaulted on not more than three residential mortgage monthly payments. Also, people who enter into forbearance agreements or loan modifications with their residential mortgage lenders can still apply for and receive a discharge of their debts through a Chapter 13 bankruptcy under the new provisions of the CAA.
These are but a few examples of the types of bankruptcy relief the CAA offers for commercial and individual debtors. You should talk with a Georgia bankruptcy attorney if you are considering filing for bankruptcy relief. The clock is ticking on the CAA provisions, so do not delay. Contact our office today.
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