Federally Backed Emergency Lending is Available to Protect Employers and Employees in the Wake of the Corona Virus and COVID-19 Pandemic
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.
It Has Never Been Easier to Determine Whether You Qualify for Relief Under Chapter 7 of the United States Bankruptcy Code in Pittsburgh.
In 2005, Congress put in place very substantial changes to the United States Bankruptcy Code through an amendment known as the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA). The BAPCPA amendments set new requirements for eligibility to be a debtor under chapter 7 of the Bankruptcy Code and to receive a discharge under chapter 7. Importantly, debtors must now undergo a means test if their income exceeds the then-applicable median income for consumers of debtors’ household size in the state in which they reside.
Eligibility for Chapter 7 Bankruptcy – Median Income Analysis
Debtors whose income does not exceed the relevant median income need not undergo further means testing. Median incomes information is calculated and published by the United States Census Bureau and median income data is adjusted periodically. The Office of the United States Trustee publishes median income information on its website. As of the date of this entry, the median income applicable to debtors in the Commonwealth of Pennsylvania with a household size of one is $50,501. A household of two in Pennsylvania can earn up to $60,508 without further means test analysis. A three-person family in Pennsylvania has a median income of $74,083. With four people the Pennsylvania median income is $89,690 and increases by $8,400 for each additional member of the household.
[Source: U.S. Census Bureau]
The Bankruptcy Means Test Exception Applicable to People with Primarily Business Debts
Individuals whose debts are primarily business debts are excused from the means testing analysis. The means test analysis under section 707(b) of the Bankruptcy Code applies to individual debtors whose debts are primarily consumer debts. A Pittsburgh bankruptcy lawyer will be able to help you make the determination of whether your debts are primarily consumer debts or whether you may be exempt from further means testing because of the primary nature of your indebtedness.
The Chapter 7 Means Test and the Presumption of Abuse
The chapter 7 bankruptcy means test is codified in section 707 of the Bankruptcy Code and individual chapter 7 bankruptcy debtors in Pittsburgh and throughout the United States must submit an Official Form 122A-1, Chapter 7 Statement of Your Current Monthly Income. Debtors must disclose information relevant to their income and household size to determine whether they need to complete the means test. The means test itself is incorporated into Official Form 122A-2, Chapter 7 Means Test Calculation. Debtors must draw income data for the means test from the income during the six-month period preceding the filing of their bankruptcy cases. The Bankruptcy Code permits debtors to subtract from their household any portion of the income of a non-filing spouse that is not dedicated to the payment of household expenses or expenses of debtors’ dependents. The means test also provides that certain expenses be deducted from a debtor’s adjusted current monthly income to determine monthly disposable income. That monthly disposable income is then multiplied by 60 to determine a debtor’s five-year disposable income. If a debtor’s disposable income over five years is less than a certain threshold value (currently $7,700), then the presumption of abuse does not arise. If the five-year income exceeds the threshold value and a cap value (currently $12,850), then the presumption of abuse arises but the debtor may still elect to complete a statement of special circumstances that justify additional expenses or adjustments of current monthly income for which there is no reasonable alternative. A showing of special circumstances may justify continued eligibility for relief under chapter 7. If a debtor’s five-year disposable income is between the threshold and cap values, the presumption of abuse will not arise unless the five-year disposable income is at least 25% of the debtor’s total nonpriority unsecured debt.
Close Call on the Means Test? Discuss it with a Pittsburgh Bankruptcy Lawyer!
The increase in the administrative cost and duration of a chapter 13 bankruptcy case from a chapter 7 bankruptcy case is considerable. In many cases a chapter 13 bankruptcy may be warranted but for other individuals a fresh start under chapter 7 of the Bankruptcy Code will offer the optimal path away from financial distress. A free consultation with a Pittsburgh bankruptcy attorney could help you understand all of your bankruptcy nonbankruptcy options before making any decision.