CARES Helps Bankruptcy Filers During the COVID-19 Pandemic
More than 40 million U.S. workers have filed for unemployment since the coronavirus pandemic spread across the nation, and many who still have their jobs are understandably worried that layoffs could be coming anytime. Business owners, too, are feeling the pain. A recent BizFed survey found that approximately 90 percent of small companies in the Los Angeles area have seen a decline in business and nearly half of them have fallen short of their projected revenue by at least 50 percent. It is no surprise, then, that many individuals and business owners are considering their debt-relief options, including filing for bankruptcy protection.
For them, Congress has provided expanded remedies. The Coronavirus Aid, Relief and Economic Security Act (CARES) — the law that provided most Americans with direct stimulus payments of up to $1,200 — has also modified parts of the U.S. Bankruptcy Code to benefit small businesses and individuals.
CARES makes it easier to file Chapter 11 bankruptcy under Subchapter V, also known as the Small Business Reorganization Act. CARES temporarily raises the debt threshold for eligibility from $2.7 million to $7.5 million. As a result, a small business with debt of less than $7.5 million, at least half of which is commercial debt, can reorganize under Chapter 11. The Subchapter V process is simpler and faster. Creditor committees usually will not be appointed and the court can approve a business’ reorganization plan even if all creditors object. The CARES modifications will last only until sometime in 2021, so it’s advisable to consult with a bankruptcy attorney soon if you’re contemplating Chapter 11.
CARES also temporarily modifies certain parts of the code’s Chapter 7 and Chapter 13 provisions until 2021. For example, individuals do not have to count their coronavirus stimulus payments as income when determining Chapter 7 eligibility. Similarly, Chapter 13 filers do not need to include these payments when calculating their disposable income. Additionally, debtors who have Chapter 13 plans in place can seek modification of those plans if they are experiencing a coronavirus-related hardship.
Filing for bankruptcy has not been slowed by curtailment of court operations during the pandemic. California’s bankruptcy courts are able to receive electronic filings, and most hearings and other proceedings can be done virtually. But before you decide that bankruptcy is your best option, speak with an experienced debt relief lawyer to discuss other tools that may available to help rebuild your finances.
The Law Offices of Michael Jay Berger is open and ready to answer any questions related to COVID-19 and bankruptcy. Our Beverly Hills firm is dedicated to helping clients get through these unprecedented challenging times. Get a free attorney consultation to discuss your situation by calling 310-271-6223 or contact us online.