Congratulations Bankruptcy Graduates! You Are Now Eligible For PPP Loans – Insolvency/Bankruptcy/Re-structuring

United States: Congratulations to the bankrupt graduates! You are now eligible for PPP loans

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To be eligible for a Paycheck Protection Program (“PPP”) loan, the applicant must certify on the borrower’s application that the applicant and any owner of 20% or more of the applicant are not “currently involved. in bankruptcy ”. This eligibility requirement has given rise to numerous lawsuits between debtors and the US Small Business Administration (“SBA”) in the year since the SBA took this position. In all cases of the first round of financing under the CARES Act, the SBA argued that bankrupt entities were not eligible for PPP loans. And with the arrival of the second round of funding in 2021, the SBA has not changed its position.

Now, with the May 31 deadline for PPP loan applications looming, the SBA has issued additional guidance, which provides that entities that have entered into bankruptcy proceedings are not, for PPP eligibility, considered. as “currently involved in bankruptcy”.

In its response to Frequently Asked Questions Number 67 on the PPP Loan Program, the SBA states that, for the purposes of PPP eligibility, a party is no longer involved in the bankruptcy under these circumstances:

Chapter 7 – The bankruptcy court issued a discharge order.

Chapters 11, 12 and 13 – The bankruptcy court issued an order upholding the plan.

Any Chapter – The bankruptcy court issued an order dismissing the case.

For an entity to be eligible for a PPP loan, the above orders must be entered before the date of the PPP loan request. If an entity is permanently closed, in bankruptcy or otherwise, it is not eligible for a PPP loan.

Therefore, if you have resolved a bankruptcy case within the past year and are otherwise eligible for a P3 loan, you can apply for a loan. The full SBA statement is available here:
https://www.sba.gov/sites/default/files/2021-04/PPP%20FAQs%204.6.21%20FINAL-508.pdf.

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

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