Bankruptcy Relief Provisions Contained in Consolidated Appropriations Act, 2021
Congress passed the much anticipated Consolidated Appropriations Act of 2021 (“CAA”) December 22, 2020, which is now awaiting the president’s signature to become law. The CAA contains several COVID-19 related changes to the United States Bankruptcy Code, 11 USC §§ 101, et seq.. (“Bankruptcy Code“), which may affect creditors. The CAA changes relating to bankruptcy relief are set out in Title X of the law. The changes that are of most interest to creditors are:
Ownership of the bankruptcy estate. The Bankruptcy Code § 541 defines what constitutes the ownership of the mass of a debtor in a bankruptcy case. The CAA amends § 541 by adding a new § 541 (b) (11) to exempt federal coronavirus relief payments (“recovery remittances made under section 6428 of the Internal Revenue Code of 1986” ) to be treated as the property of the estate; this amendment expires one year after its promulgation.
Limited Chapter 13 Plan Default Relief. Chapter 13 of the Bankruptcy Code is essentially a simplified version of Chapter 11, suitable for people with regular income. CAA amends § 1328 to provide, among other things, that a debtor under a confirmed Chapter 13 plan can still obtain discharge as long as the debtor does not meet more than 3 monthly payments due on a residential mortgage from March 13. , 2020, where payment defaults are caused by significant financial hardship due, directly or indirectly, to the 2019 coronavirus disease (COVID-19) pandemic. The missing mortgage payments would still be owed to the lender, but the debtor would not lose the benefits of a bankruptcy discharge for the other debts. This amendment expires one year after its promulgation.
Extension of protection against discriminatory treatment. The CAA extends § 525 of the Bankruptcy Code, which protects against discriminatory treatment of debtors due to filing for bankruptcy, to ensure that these debtors have access to redress under the Help, Relief and Rescue Act. economic security against coronaviruses, S. 3548 (“CARES Act”, signed by the President on March 27, 2020) for mortgage forbearance or any other COVID-19 mortgage assistance available to homeowners, or for assistance with the COVID-19 eviction under the CARES Act available to tenants. This amendment expires one year after its promulgation.
Claims by creditors for amounts lost during periods of forbearance from the CARES Act. The CAA amends §§ 501 and 502 of the Bankruptcy Code, which together deal with filing and accepting claims in bankruptcy cases, to establish a process by which creditors can file proof of claim for amounts allegedly lost due to mandated abstention periods. by the CARES Act, and to impose related requirements for such claims. These changes expire one year after their promulgation.
Limited ability to modify confirmed plans in Chapter 13. The CAA amends Section 1329 of the Bankruptcy Code to allow modification of a Chapter 13 plan to accommodate evidence of forbearance from the creditors’ CARES Act (as noted above). This amendment expires one year after its promulgation.
Limited change in the treatment of unmatured leases of non-residential real estate. The CAA amends § 365 (d) (3) of the Bankruptcy Code, which requires a debtor to continue to perform its obligations under an unexpired lease of non-residential immovable property, to provide that debtors of “subchapter V small business chapter 11 bankruptcy cases’ can apply to the bankruptcy court for an additional 60 days (120 days in total) to pay rent if the debtor has experienced and continues to experience significant financial hardship, directly or indirectly, due to the COVID-19 pandemic. The amendment provides that any claim arising from such an extension will be treated as an administrative priority expenditure for the purposes of confirming a subchapter V small business plan. This amendment expires 2 years after promulgation, but the provisions will continue to apply to any Chapter 11 Subchapter V small business bankruptcy case started before the expiration date.
In addition, the CAA amends section 365 (d) (4), which provides that an unexpired lease of non-residential real estate is deemed to be rejected unless it is assumed by the debtor within 120 days after filing the bankruptcy case, to increase this period to 210 days. Since the bankruptcy court already has the capacity, under applicable law, to increase the time limit of section 365 (d) (4) by 90 days, this means that a debtor under An unexpired lease of non-residential real estate can have up to 300 days to decide whether to assume or decline the lease. This amendment also expires 2 years after enactment, but the provisions will continue to apply to any Chapter 11 small business Sub-Chapter V bankruptcy cases started before the expiration date.
Limited relief from preferential transfers. The CAA amends § 547 of the Bankruptcy Code, which governs the recovery of so-called preferential transfers for the benefit of the bankruptcy estate, in order to protect deferred payments made by a debtor after March 13, 2020, from being recovered from the owners (real estate) and suppliers of goods and services, but only to the extent that such deferred payments do not include any fees, penalties or interest in an amount greater than the fees, penalties or interest that the debtor would otherwise have owed without the postponement. This amendment expires 2 years after its promulgation, but the provisions will continue to apply to any bankruptcy case initiated before the expiration date.
Limited relief from termination of utilities for individual debtors. The CAA amends § 366 of the Bankruptcy Code, regarding the termination of public services to a debtor in a bankruptcy case, to specify that the public service cannot terminate services to individual debtors for failing to provide a security deposit, as long as the debtor pays the utility for any debt owed for services provided during the 20 day period beginning on the date of filing for bankruptcy and thereafter makes timely payments for the services provided during the term of the case. This amendment expires one year after its promulgation.
Carry: In response to the persistent crises – both human and economic – caused by the COVID-19 pandemic, the changes made by the CAA to the Bankruptcy Code aim to help, but also to further complicate, what is already a very statutory scheme. complicated for creditors.