COVID-19: Bankruptcy Code Amendments in Consolidated Credit Law and COVID-19 Bankruptcy Relief Extension Law

On March 27, 2021, President Biden enacted the law COVID-19 Bankruptcy Relief Extension Act (the law on extension). The Extension Act temporarily extends certain COVID-19 bankruptcy relief provisions adopted as part of the Coronavirus Aid, Relief and Economic Security Act (CARES Law), which were again amended and / or extended within the framework of the Consolidated Appropriation Act (the CAA). Some of the changes included in the CAA and the Extension Act are highlighted below:

Debtor Protection Program Loans and Paychecks

Under the CARES Act, Congress established the Paycheck Protection Program (PPP) administered by the Small Business Administration (SBA), through which businesses can obtain loans that would be canceled if borrowers used the funds for certain authorized purposes. The SBA enacted a rule declaring bankrupt debtors ineligible for PPP loans. Debtors across the country have challenged this rule. The CAA is attempting to address this problem by expressly allowing certain bankrupt debtors to obtain PPP loans only if the SBA administrator sends a letter to the director of the United States Executive Board of Trustees approving the rule change. If the SBA administrator delivers such a letter, PPP funds will be available (a) in cases filed after the letter delivery date and (b) to subchapter V small business debtors, debtors of family farmers and fishermen of Chapter 12, and to Chapter 13 debtors employees. To date, the SBA administrator has yet to deliver the letter. This provision expires under the CAA on December 27, 2022.

Discrimination under section 525

Section 525 of the Bankruptcy Code generally protects bankrupt debtors from certain types of discrimination based solely on the fact that the debtor has sought bankruptcy relief. The CAA amends section 525 to clarify that a bankrupt debtor also cannot be deprived of the benefit of certain provisions of the CARES Act by virtue of their status as a bankrupt debtor, including (a) the foreclosure moratorium and the right to seek forbearance, (b) forbearance from mortgage payments for multi-family properties, and (c) temporary moratorium on eviction deposits. This amendment to section 525 will expire on December 27, 2021.

Unmatured non-residential real estate leases

Section 365 (d) (3) of the Bankruptcy Code requires a debtor to continue to execute its unexpired non-residential real estate leases on time, until such leases are accepted or rejected. The CAA allows debtors in subchapter V small business cases to request a 60-day (up to 120 days total) performance period under its unexpired non-residential real estate leases, if the debtor has experienced and continues to suffer from a significant financial situation. difficulties due to the COVID-19 pandemic. In addition, and without the need to demonstrate significant financial hardship, the CAA also allows an additional 90-day extension to the 120-day period for the debtor to assume or reject unexpired non-residential real estate leases. With this additional extension, all debtors can have up to 300 days to determine whether to assume or reject these leases. These two provisions expire on December 27, 2022, but they will remain applicable to any business initiated before that date.

Preferences

Section 547 allows a debtor or trustee to avoid certain payments under pre-bankruptcy obligations while the debtor is insolvent. The CAA amends section 547 to prohibit the cancellation of payments made during the preference period after March 13, 2020, for “covered rent arrears” and “covered supplier arrears” that had been deferred under an abstention or a similar agreement. In order for payments to be eligible for the cancellation exemption, they must not include any fees, penalties or interest in excess of those amounts that would have accrued without any deferral.

Tariffs

The CAA is also amending Section 507 (d) of the Bankruptcy Code to allow claims arising from customs duties paid to the federal government on behalf of an importer. The provision is designed to help brokers and freight forwarders who pay the government for tariffs on behalf of customers and expires on December 27, 2021.

Creditors’ claims

Finally, the CAA amends Articles 501 and 502 of the Bankruptcy Code to create a process by which creditors can file proof of claim for amounts accrued due to the implementation and relief provided by the CARES Act. This provision aims to compensate creditors for any damage suffered as a result of the implementation of the CARES law, and it expires on December 27, 2021.

Subchapter V Limits

The bill extends until March 27, 2022, the debt ceilings increased under the Small Business Reorganization Act, 2019, allowing more debtors to use streamlined subchapter V bankruptcy procedures. The CARES Act previously increased these debt limits from $ 2.7 million to $ 7.5 million , but this increase was originally scheduled to expire on March 27, 2021.

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