Bankruptcy Code Revisions Designed to Address COVID-19 Challenges

Relief for Debtors Harmed by Response to Corona Virus

Bankruptcy Code amendments respond to Corona Virus

Social distancing is proving to be an effective response to the Corona Virus public health crisis. Unfortunately, those same measures will harm the economy. Most analysts agree that commercial and consumer bankruptcy filings will rise sharply. In response, Congress has acted with temporary Bankruptcy Code revisions. Now, consumer debtors may be able to decrease their monthly payments by extending the terms of their chapter 13 repayment plans. The amendments will also benefit businesses affected by the COVID-19 pandemic. The amendment expands eligibility for the relaxed, “small business debtor” bankruptcy process. The bankruptcy relief provided under the CARES Act could provide meaningful relief to debtors in business and personal bankruptcy cases.

Temporary Revisions to Chapter 13 of the Bankruptcy Code (COVID-19)

Chapter 13 bankruptcy is a voluntary “reorganization” bankruptcy for individuals. Ordinarily, chapter 13 debtors cannot extend their plan payments beyond a term of five years. That five-year maximum can prevent struggling families from saving their homes from mortgage foreclosure. Typically, debtors fund their chapter 13 plans from the income they receive during the term of the plan. Thus, plan duration and debtors’ income impose a limit on plan funding. That limit may prevent debtors from curing mortgage delinquencies through a chapter 13 plan. Bankruptcy lawyers call that problem “infeasibility.”

Bankruptcy Code revisions in the CARES Act permit modification of plans, extending up to seven years. Debtors must have court approval to extend their confirmed plans beyond a 60-month term. Debtors must also have experienced a “material financial hardship due.” The hardship must, “directly or indirectly, to coronavirus disease 2019 (COVID-19) pandemic.”

Protections Related to Stimulus Payments

The CARES Act Bankruptcy Code revisions ensure that stimulus payments won’t affect debtors’ “current monthly income” and “disposable income.” Those calculations have important implications to the chapter 13 process. Current monthly income determines whether a plan term may be three years or must extend to five. Disposable income determines whether a debtor meets the “best efforts” requirement for plan confirmation. Chapter 13 debtors often pay unsecured creditors less than 100% of their claims over the life of the plan. However, such debtors must devote all of their “disposable income” to fund the plan. If disposable income increased as result of payments from the government, they could threaten the viability of chapter 13 for some debtors. Congress wisely avoided that potential problem through its Bankruptcy Code revisions.

Small Business Reorganization Streamlined Process

The CARES Act amends Small Business Reorganization Act of 2019, increasing the debt threshold from $2,725,625 to $7.5 million. Considering the advantages offered under the streamlined “Small Business” bankruptcy, that amendment could provide a cost-effective reorganization option to many more companies.

The chapter 11 process for small businesses may be attractive to financially distressed companies, concerned about the potential cost and delay of a traditional chapter 11 filing. The cost-saving features include the elimination of the requirement of payment of quarterly fees to the United States trustee, and the absence of official appointed committees (e.g., a committee of unsecured creditors). Instead, a standing trustee oversees case administration and ensures Bankruptcy Code compliance.

The time saving characteristics of a small business chapter 11 may also be attractive. Small business debtors do not require a hearing on a disclosure statement. Unlike an ordinary chapter 11 case where parties in interest can file a plan after the debtor’s right to exclusivity expires, only the debtor may file a plan in a small business case.

Small Business Bankruptcy – Additional Advantages

Among the most enticing features of the new small business law are its simplified approach to “cramdown” and the “absolute priority rule.” Here, cramdown refers to confirmation of a plan over creditor objections. The small business process eliminates the requirement of an impaired class of creditors who voted in favor of the plan. In simplified terms, the “absolute priority rule” mandates that lower priority interest holders must not receive any value under the plan while any senior creditors have unpaid claims. Since an owner’s interest in a debtor exists at a lower priority than general unsecured claims, some courts have interpreted the absolute priority rule to prevent debtors from discharging debt without affecting ownership interests.

Bankruptcy Amendments Sunset Provisions

The CARES Act Bankruptcy Code revisions diverge from the existing statutory scheme. For that reason, the Bankruptcy Code revisions are temporary and will terminate after one year. The bankruptcy amendments give individuals and small businesses some advantages in their reorganization bankruptcies. However, only time will tell whether those adjustments will be enough to protect those hit hardest by the economic ripple effects of COVID-19.

Contact Robleto Kuruce if you have questions about the COVID-19 amendments, or simply want to learn about your bankruptcy options. Experienced bankruptcy lawyers will give you answers during a no-contact, free consultation.

Call now (412) 925-8194.

Paycheck Protection Program – A Provision of the CARES Act

Federally Backed Emergency Lending is Available to Protect Employers and Employees in the Wake of the Corona Virus and COVID-19 Pandemic

Paycheck Protection Program – Stimulus Loans to Protect American Jobs

The Coronavirus Aid, Relief, and Economic Security Act known as the CARES Act has been signed into law, including its Paycheck Protection Program (PPP). Under the program small businesses may be eligible for stimulus financial aid that could help protect jobs and reduce the flood of bankruptcy filings as a result of the COVID-19 pandemic. Certain PPP loans under the CARES Act will be “forgivable” (meaning that they will not need to be repaid). But it’s critical to look closely at the terms of program since not all loans may not be eligible for forgiveness.

The Paycheck Protection Program is part of the Keeping American Workers Paid and Employed Act. Under the program, if your company has fewer than 500 employees, it may be eligible to receive stimulus funds equal to 2.5 times your average monthly payroll up to $10 million, as a result of business interruption from COVID-19. Although in the form of an unsecured, no-fee loan, loan forgiveness may be available if your company uses the loan proceeds to fund certain eligible expenses, including payroll, mortgage obligations, rent, utilities; and your company maintains its payroll during the crisis period or restores their payrolls afterward, as required by the law.

Frequently Asked Questions (FAQ) Regarding the CARES Act and the Payment Protection Program Stimulus

What Loans are Covered by the Paycheck Protection Program?

The PPP extends only to loans during the period of February 15, 2020 through June 30, 2020, that are made pursuant to the Paycheck Protection Program. Importantly, Congress amended the existing Small Business Act to provide the mechanism for issuance of PPP loans. 15 U.S.C. § 636(a)(36)

Which Lenders are Authorized to Issue Loans Under the Paycheck Protection Program?

All lenders authorized to issue SBA loans under the Small Business Act also should be empowered to issue PPP stimulus loans. In the new authorizes the Secretary of the Treasury and the Administrator of the SBA to extend lending authorization to non-SBA lenders if they find that those lenders are sufficiently qualified.

Is There a Limit to the Amount a Company May Borrow Through a PPP Loan?

Yes, in most cases the amount of any PPP loan will be limited to a maximum loan amount equal to two and a half times the company’s 2019 average annual payroll cost, or $10 million.

If My Company Did Not Exist in 2019, Can It Be Eligible for a PPP Loan?

Companies that were not in business in 2019 may calculate their average payroll costs by reference to the payroll expense incurred from January 1, 2020 through February 29, 2020. As with most other companies, the maximum amount of a stimulus loan under the Paycheck Protection Program is limited to an amount equal to two and a half times the company’s average annual payroll cost, or $10 million.

What Information Should I Have for the PPP Loan Application?

Prospective borrowers under the Paycheck Protection Program should be prepared with the following information:
(i) compensation, including salary, wage, and commissions;
(ii) payment of state or local tax assessed on employee compensation;
(iii) payment of cash tips, or the equivalent;
(iv) payments for leave, including vacation, parental, family, medical or sick;
(v) allowance for dismissal, termination or similar separation;
(vi) payment of health care or medical insurance premiums; and
(vii) payments for retirement benefits.

What Representations Must Borrowers Make to Be Eligible for PPP Loans?

Prospective borrowers of a PPP loan must represent, among other things, that:
(i) the current economic uncertainty has made the loan request necessary;
(ii) they understand the limitation on the use of PPP loan proceeds for use to maintain payroll and certain other items such as rent, mortgage interest and utilities; and
(iii) they have no other loans or pending applications for loans for the same purpose.

We recommend that you discuss these matters with experienced, qualified attorneys before taking any action. As a general matter, we will address some frequently asked questions asked about the Paycheck Protection Program. If you need assistance navigating this application or any other issues related to the continued operation or liquidation of your business, please don’t hesitate to contact our law firm.

Will the President Elect’s Experiences in Bankruptcy Court Help to Expand Access to Bankruptcy for Consumer Debtors in Pittsburgh?

donald-j-trump-1271634_960_720A Pittsburgh Bankruptcy Lawyer Considers Whether a New President Might Stir Changes in Bankruptcy Law

When Donald Trump takes the oath of office, he will not be the first executive to have resorted to our nation’s bankruptcy law. Some of our most venerable Presidents have been debtors in bankruptcy cases including Thomas Jefferson, James Monroe and Abraham Lincoln. However, the shape of bankruptcy law has changed dramatically since the days of Lincoln. In fact, the United States Bankruptcy Code underwent a very dramatic overhaul in 2005 with its modification through the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA).

BAPCPA set in place certain restrictions for consumer debtors seeking a fresh start. Such debtors are required to undergo a course in credit counseling prior to filing a voluntary bankruptcy petition. The course must be administered by an approved agency and may vary in cost from approximately $15 to $25. The credit counseling course can generally be completed in-person or by telephone but many people find it most convenient to complete the course online. Once the course is completed, the approved counseling provider will generate a certificate of completion which it will direct to the bankruptcy lawyer for filing on the first day of the bankruptcy case.   In certain rare instances, debtors may file their bankruptcy case without completing the course and then submit a certificate of exigent circumstances which could excuse tardy compliance with the pre-petition credit counseling rule.

BAPCPA also brought with it a means test that sometimes creates a rebuttable presumption of abuse when debtors in cases under chapter 7 have monthly income in excess of relevant median income for their state. Often in those cases, the Office of the United States Trustee will issue an inquiry letter upon such debtors or their counsel requesting support for the determination that a particular chapter 7 filing is not abusive.

As a matter of policy, the present design of the Bankruptcy Code encourages filing cases under chapter 13 rather than chapter 7. Through chapter 13 bankruptcy cases, debtors may pay some or all of their debts over a period of three to five years. A chapter 13 “reorganization” bankruptcy has some special attributes and it may often present a more favorable outcome for people in certain financial positions. For instance, chapter 13 may offer the best hope for a person attempting to save their home from foreclosure.

The Bankruptcy Code also places strict restrictions upon debtors’ eligibility to for a discharge for a period of time after having received a bankruptcy discharge in a prior case. The law also severely limits the applicability of a bankruptcy discharge to student loan obligations and to many kinds of tax claims. If the political appetite to expand debtors’ rights existed, even very modest adjustments to the Bankruptcy Code could result in substantial relief for many consumers.

Whether the President Elect’s bankruptcy experience will affect the development of our nation’s bankruptcy laws is not clear. A less polarized Congress could be better positioned to pass new legislation. Moreover, filing the many judicial vacancies of the United States Courts will affect how the law is interpreted—not least when at least one of those appointments will be to the United States Supreme Court. For the time being, Pittsburgh bankruptcy lawyers will anxiously monitor the development of bankruptcy law.

We are a debt relief agency.  We help people file for relief under the United States Bankruptcy Code.

Business Bankruptcy Lawyers Pittsburgh

Pittsburgh Business Bankruptcy Finding the Right Commercial Bankruptcy Law Firm Might Save Your Business

When Your Business is in Jeopardy, You Should Rely Upon the Vast Experience of an Extraordinary Pittsburgh Bankruptcy Law Firm

 

Pittsburgh Business Bankruptcy

Bankruptcy May Protect Your Business

Pittsburgh has a “no quit” approach to the world. Pittsburgh’s resilience is evident from its early days as powerhouse of American industry through its financial self-reinvention as a modern day center of innovation in medicine and technology. Unsurprisingly, our sports teams recognize that a game “ain’t over until it’s over” and the Pittsburgh Steelers, Pittsburgh Pirates and Pittsburgh Penguins are known for their many come from behind victories.  With that in mind, it should come as no surprise bankruptcy is an option of last resort for many Pittsburgh businesses.  Still, a strategic commercial bankruptcy can sometimes result in a stronger, more profitable business enterprise going forward.  A business bankruptcy case does not carry the same stigma as a consumer bankruptcy case.  Sophisticated business people understand that entrepreneurs often undertake considerable risk in their business ventures.  Business risk involves the inherent potential for both profit and for loss.  When the debts of a business become so excessive that they threaten the ability of that business to continue as a going concern, a business bankruptcy case could offer a way back to solvency.

“A strategic commercial bankruptcy can sometimes result in a stronger, more profitable business enterprise going forward.”


First, consider the affect that a bankruptcy case might have on your business in terms of reputation within your industry.  Certain types of businesses suffer from the mere fact of having filed a bankruptcy case.  If you think your customer base would be substantially diminished as a consequence of filing a bankruptcy case, you should weigh that against the benefits you expect from filing a bankruptcy case (a temporary 20% loss of revenue may be tolerable if it eliminates a large chunk of debt).  Second, talk to your bankruptcy attorney about the benefits your company could see as a result of filing a bankruptcy case.  Your bankruptcy attorney should identify issues that are likely to arise in your particular case.  If your business has aggressive creditors, your bankruptcy lawyer should be able to anticipate the strategy those creditors will take in the bankruptcy case.

What Type of Business Bankruptcy Makes Sense for Your Business?

There is more than one type of commercial bankruptcy.  If you expect to continue operating your business after filing your bankruptcy, you will most likely file a Chapter 11 bankruptcy case.  Under Chapter 11 of the United States Bankruptcy Code, you will retain operational control over your business as a “debtor in possession.”  You will be able to conduct the day to day affairs of your business and to make transactions in the ordinary course of that business.  However, if you wish to undertake any transactions outside of the ordinary course of business (things like selling all of the assets of the business), your bankruptcy lawyer will need to seek the approval of the Bankruptcy Court.

Under Chapter 7 of the Bankruptcy Code, you will give up control of your business and turn over all accounts and records to a Chapter 7 Trustee who will liquidate the assets of the business for the benefit of its creditors and distribute proceeds according to the priorities set forth in the Bankruptcy Code.

Business Bankruptcy Exit Strategy

Before you file your business bankruptcy, you should know what your exit strategy will be.  In most successful business bankruptcy cases, the debtor files a plan of reorganization.  In order to become effective, the Bankruptcy Court must confirm the plan of reorganization and the bankruptcy disclosure statement describing it.  A plan may be approved by the creditors or confirmed over the objection of creditors through a process known as “cram down.”  To be confirmed, a plan must meet several tests, including that it must be fair and equitable, be in the best interest of creditors and meet all other requirements of the Bankruptcy Code.

Increase your chances of success by consulting with an experienced business bankruptcy lawyer in Pittsburgh today.