Nine Bankruptcy Code amendments included in latest appropriations bill | Thompson Coburn LLP
On December 27, 2020, the Consolidated Appropriation Act (“CAA”) was promulgated. The nearly 5,600-page bill would be the longest bill ever passed by Congress. In addition to funding the federal government in 2021 and providing COVID-related relief to individuals and businesses, the new law amends the Bankruptcy Code in at least nine areas. Most changes expire in one or two years. One of the amendments will only come into effect if the Small Business Administration approves it.
A brief description of the changes follows.
1. PPP loans to debtors (or trustees)
The Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”), enacted on March 27, 2020, created the Paycheck Protection Program (the “PPP”), the Paycheck Protection Program (the “PPP”). Now familiar forgivable loan administered by the Small Business Administration. (“SBA”). Almost immediately after the passage of the CARES Act, debtors began to apply for PPP loans, sparking controversy over the availability of such loans for failed businesses. The SBA has always opposed PPP loans for debtors, and case law across the country has been inconsistent. As late as December 22, 2020, the Eleventh Circuit ruled that debtors cannot get PPP loans. See USF Federal Credit Union, et al. v. Gateway Radiology Consultants, PA, 2020 WL 7579338 (11th Cir. 22 December 2020).
CAA addresses the issue of PPP loans but unfortunately only adds to the uncertainty. The CAA amends the Bankruptcy Code to authorize PPP loans to certain debtors. However, the law also states that these PPP loans will only be available if the administrator of the SBA sends a letter to the director of the executive office of the United States Trustee approving the PPP loans in the event of bankruptcy. Therefore, the new law apparently delegates discretion to the SBA administrator whether or not to approve PPP loans in the event of bankruptcy, so we do not yet know if these PPP loans will be available.
Assuming the SBA administrator acquiesces in the PPP loans in bankruptcy, the loans will be available: (a) only in cases filed after the date on which the SBA sends the aforementioned letter to the United States Office of the Trustee , and (b) only to certain types of debtors, namely small business debtors of subchapter V, debtors of chapter 12 of family farmers and debtors of chapter 13 of self-employed workers. This provision, if it comes into force, will expire on December 27, 2022.
2. Chapter 13 release available even if some plan payments have not been made
CAA amends section 1328 to give bankruptcy court discretion to grant discharge to a Chapter 13 debtor even if the debtor defaulted on or after March 13, 2020 by no more than three monthly payments under a residential mortgage due to significant COVID-19 related financial hardship. In addition, the court may also grant discharge to a debtor whose confirmed plan provides for remedying defaults on a residential mortgage, and the debtor has entered into a qualifying loan modification or forbearance agreement with the lender. This makes do not means that the debtor will be released from mortgage debt, but a debtor will be eligible for release from the plan for other debts even if they have not paid all mortgage payments when due under the plan. This provision expires on December 27, 2021.
3. No discrimination due to filing for bankruptcy
The CAA amends section 525 of the Bankruptcy Code to provide that no person can be denied relief under three enumerated provisions of the CARES Act solely because the person is or was a debtor in a bankruptcy case. The three provisions of the CARES Act are: (a) the foreclosure moratorium and the right to seek forbearance (15 USC § 9056), (b) forbearance from mortgage payments for multi-family properties (15 USC § 9057) , and (c) the temporary moratorium on deportation requests (15 USC § 9058). This provision expires on December 27, 2021.
4. CARES requests for abstention; modification of the plan of chapter 13
Under the CARES Act, mortgagors of federally guaranteed residential and multi-family mortgages can apply for forbearance due to COVID-19 hardship. In the case of a residential mortgage loan guaranteed by the federal government, the forbearance period can be up to 12 months. At the end of the forbearance periods, the mortgagor must pay the deferred mortgage payments in a lump sum. These deferred mortgage payments have created significant procedural and administrative complications in Chapter 13 cases. To address these complications, the CAA allows qualified repairers to file a proof of claim for the deferred payments, even if the deadline for payment is due. claim is exceeded. The CAA also allows debtors to modify a confirmed Chapter 13 plan to accommodate the deferred payment plan. If the debtor does not change their plan, the bankruptcy court (on its own initiative), the office of the US trustee, the chapter 13 trustee and / or any interested party may request such a change. These changes end in one year, on December 27, 2021.
5. Extend the period of execution under an unexpired non-residential real estate lease in a case of sub-chapter V
The CAA amends Section 365 (d) of the Bankruptcy Code to extend the execution time of a subchapter V small business debtor under an unexpired lease of non-residential real estate if the debtor knows or suffered significant financial hardship due, directly or indirectly. , to COVID-19. The extension is limited to 60 days after filing, unless the court finds that the debtor continues to experience financial hardship related to COVID-19, in which case the court may extend the period for an additional 60 days. Any deferred obligation unpaid upon confirmation is an administrative expense, but the debtor may stagger payments over time under the confirmed plan. These changes only apply to cases brought under Subchapter V, and they expire in two years, on December 27, 2022.
6. Extend the deadline for assuming or rejecting an unexpired non-residential real estate lease
The CAA amends Section 365 (d) (4) (A) of the Bankruptcy Code to give the debtor (or trustee) 210 days after the reorganization order to assume an unexpired non-residential real estate lease, thereby extending the period under law an additional 90 days. This change applies to cases falling under all chapters and expires in two years on December 27, 2022.
CAA amends section 547 to prohibit a debtor or trustee from avoiding payments made by a debtor during the preference period for “covered rent arrears” and “covered supplier arrears”. To benefit from the exemption, (a) the debtor and the counterparty must have entered into a binding lease or contract before filing, (b) they must have amended the lease or contract after March 13, 2020, and (c) the amendment must have deferred or deferred payments otherwise due under the lease or contract. do not apply to the payment of any fees, penalties or interest imposed in the amendment subsequent to March 13, 2020. This provision will expire in two years, on December 27, 2022.
The CAA amends Article 366 of the Bankruptcy Code to prohibit a utility from interrupting utilities to an individual debtor as long as the individual debtor pays the utility company for services rendered within twenty days of the filing period and continues to make all other subsequent requests. utility payments, even if the individual debtor has not otherwise provided the utility company with adequate payment insurance. This provision expires in one year, December 27, 2021.
9. Customs duties
CAA amends Section 507 (d) of the Bankruptcy Code so that a party that pays the U.S. government a customs duty on behalf of an importer is subrogated to government priority status under Section 507 (b) (8) (F) for customs duties. This provision benefits customs brokers and freight forwarders who frequently pay customs duties to the government on behalf of their importing customers. This provision expires in one year, December 27, 2021.