Over 90 Years Serving Our Clients

  1. Home
  2.  » 
  3. Bankruptcy
  4.  » Bankruptcy Changes in the CARES Act

Bankruptcy Changes in the CARES Act

By Mercedes Diego 

The Coronavirus Aid, Relief and Economic Security Act of 2020 (“CARES Act”) became effective on February 19, 2020 and raises the maximum debt level to qualify for under the Small Business Reorganization Act of Chapter 11 from $2,725,625 to $7,500,000. This change will allow many businesses that did not qualify for filing under the Small Business SubChapter of Chapter 11 to now qualify. This part of the CARES Act contains a sunset provision that will reduce the maximum debt level back to $2,725,625 on the one year anniversary of the CARES Act.

In addition the CARES Act modifies the definition of “current monthly income” in 11 USC 101(10A(B)(ii) to exclude payments made under federal law relating to the national emergency declared by President Trump under the National Emergencies Act with respect to COVID-19. Also any payments made to individuals under federal law relating to COVID-19 do not constitute “disposable income” required to be used to fund a Chapter 13 plan.

Also for Chapter 13 debtors whose plans were confirmed prior to the COVID-19 pandemic, the debtor may file a motion to amend the plan if the debtor is experiencing a “material financial hardship” due to the COVID-19 pandemic. The plan can be extended up to seven years after the first payment under the original confirmed plan became due. This portion of the CARES Act will also expire on March 27, 2021.

If you are contemplating bankruptcy, please contact Cohn Lifland for a consultation to discuss your options.

FindLaw Network