Bankruptcy Under the CARES Act

Bankruptcy Law Changes Under the CARES Act

Just as so many people across the world have been negatively impacted by the Coronavirus pandemic, many people’s financial lives have been thrown into complete upheaval. As part of the government’s economic policy efforts to address the pandemic, the Coronavirus Aid, Relief and Economic Security Act was passed (“CARES Act”). Provisions in the act amend bankruptcy laws to make a number of key changes.

Bankruptcy Changes Under the CARES Act

1. Small Business Bankruptcy Under the CARES Act: The CARES act increases the threshold debt amount for one year to $7,500,000 when considering small business bankruptcy eligibility. There was also a key opinion issued by Judge Tucker from the Eastern District of Michigan allowing some cases already proceeding under Chapter 11 can make a certain election to proceed under the CARES act changes. This is a technical consideration that you should consult with a bankruptcy attorney to determine.
Chapter 7 and Chapter 13 Bankruptcy Under CARES Act: For Chapter 7 and Chapter 13 filers, there are a number of changes, albeit somewhat small, concerning coronavirus-related payments and income calculations for bankruptcy purposes.

2. Chapter 7 and Chapter 13 Bankruptcy Under CARES Act: For Chapter 7 and Chapter 13 filers, there are a number of changes, albeit somewhat small, concerning coronavirus-related payments and income calculations for bankruptcy purposes.

The CARES Act and Small Business Bankruptcy Under Chapter 11

The Small Business Bankruptcy changes are technically an amendment to the Small Business Reorgization Act (SBRA). Subchapter 5 to the Bankruptcy Code applies to small business bankruptcies under Chapter 11. The SBRA originally limits the definition of a debtor under this act (and thus, creates an eligibility requirement) that the business debts not exceed $2,725,625. Under the CARES act, this eligibility threshold is increased to $7,500,000 for one year. Then the debt limit returns after a year. 

The CARES Act and Chapter 7 and Chapter 13 Bankruptcies

In addition to small business changes, the CARES act also makes changes to Chapter 7 and Chapter 13 Bankruptcies. Among these changes includes that coronavirus-related payments received are not considered part of a debtor’s income for purposes of eligibility under Chapter 7 or Chapter 13 bankruptcy. This impacts means testing and is important to consult with a bankruptcy lawyer regarding your elgibility to file bankruptcy based on your income. This is also true under Chapter 13 bankruptcies as the CARES act does not consider coronavirus-related payments to be part of income under Chapter 13 bankruptcy.

Our Team

chris Sawan

Chris Sawan holds a JD, MBA and is a CPA with a background that yields itself to some of the most complex legal challenges facing businesses, families, and individuals.

DENNIS Sawan

Dennis E. Sawan is licensed to practice law in the States of Florida and Ohio. His experience as a transactional attorney makes him a tremendous ally to have for all types of transactions.

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This is an ATTORNEY ADVERTISEMENT. Sawan PLLC is a law firm with attorneys licensed in Michigan, Ohio and Florida. We assist clients filing bankruptcy. If you are considering bankruptcy, please call our offices. No attorney-client relationship is created by your use of this website. The information contained on this website is provided for general purposes only and does not apply to your specific factual circumstances in all cases. For us to better understand the particular facts unique to your case, call 419-469-5002 for a free consultation.

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