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Stimulus Bill Changes to Small Business Reorganization Act and Consumer Bankruptcy

Posted on April 3, 2020 in , by Jamie Leggett

In November, we discussed the Small Business Reorganization Act (SBRA) passed by Congress to speed up the process and reduce the cost of bankruptcy for small businesses (under $2.7 million in debt). The SBRA went into effect on February 19, 2020, and it is aimed at providing a better solution for small businesses to restructure, save jobs, and reduce the need to liquidate assets to survive while also paying off creditors pursuant to a 3 to 5-year plan. Since then, Congress passed the Coronavirus Aid, Relief, and Economic Security Act (CARES), which made small business reorganizations even easier: 

  • The CARES Act increased the eligibility threshold from $2,725,625 of debt to $7,500,000.  After one year, the eligibility threshold will revert back to $2,725,625. The increased debt limit will provide access to SBRA proceedings for more struggling businesses.

The CARES Act also enacted changes to make bankruptcies easier for consumers:

  • The CARES Act changes the definition of “income” for Chapter 7 and 13 so that coronavirus-related payments from the federal government do not count when filing for bankruptcy. 
  • When calculating disposable income for the purposes of filing for Chapter 13 bankruptcy, coronavirus-related payments are excluded there as well. 
  • Under the CARES Act, consumers currently in Chapter 13 are allowed to seek payment plan modifications if they are experiencing financial difficulties due to the COVID-19 pandemic. This provision includes extending their payments for up to seven years after their initial plan payment due date. 

The CARES ACT provides that these foregoing bankruptcy provisions will all expire within a year. 

About the Author: Jaime Leggett practices in the areas of bankruptcy and complex commercial litigation. His experience includes prosecuting director and officer liability claims; representing trustees, creditors, equity holders, and debtors in bankruptcy proceedings; federal and state court commercial litigation; and trials in federal, bankruptcy, and state courts nationwide. Click here to find out more about Jaime.