Bankruptcy Update: COVID-19 Bankruptcy Relief Law of 2021 | Dunlap Bennett & Ludwig SARL
On March 27, 2021, President Biden enacted the COVID-19 Bankruptcy Relief Extension Act (the “Extension Act”) under the name Pub.L. 117-5. In the relevant part, it extends by one year the increased debt limits for small businesses and individuals who wish to take advantage of filing for bankruptcy under subchapter V of Chapter 11.
Subchapter V became law under the Small Business Reorganization Act of 2019. Subchapter V provides eligible debtors, both small businesses and individuals, a much more debtor-friendly path. through Chapter 11 bankruptcy. Some of these benefits include (a) the absence of an appointed unsecured creditors committee (except for cause, after notice and a hearing) whose attorney fees would be paid by the estate of the debtor, (b) 90 days from the date of the petition for the debtor to file a plan, (c) elimination of the ability of other parties to file a concurrent plan, (d) a much easier route the confirmation of a Chapter 11 plan with the elimination of the first priority rule and the ability of the Court to confirm a plan even despite the objection of all creditors, (e) the elimination of the need to file a disclosure statement, (f) the appointment of a sub-chapter V trustee whose fees are relatively minimal and whose main purpose is to facilitate the acceptance of a consensual plan by all parties, and (g) other advantages.
Originally, only debtors with “a total of secured and unsecured debts liquidated unconditional on the date of the filing of the petition or on the date of the relief order by an amount not exceeding 2,725,625 $… Business or business activities of the debtor ”were eligible to file a Subchapter V case. However, due to the pandemic, this debt limit was increased by the Aid, Relief and Rescue Act of 2020. Economic Security (“CARES”) at $ 7,500,000.00. This increase was scheduled to expire on March 27, 2021.
A bipartisan group of senators and representatives met to introduce and pass the extension law, and President Biden signed it on March 27, 2021. Relief law extends expiration of relaxed requirements to qualify to file a sub-chapter V file. The increased debt limit of $ 7,500,000.00 now remains in effect until its new expiry date, March 27, 2022.
Whether you’re an individual struggling with substantial business income and not eligible to file Chapter 13, or a business that doesn’t want the cost or hassle of a traditional Chapter 11, this debt limit increased for subchapter V of chapter 11 could make bankruptcy a much more attractive option and provide a way to deal with your debt restructuring. The debt limit may not be extended next year, so it may be time to consider your options.