Changes to Chapter 11 Under the CARES Act

Memphis Bankruptcy, Social Security Disability & Long Term Disability Attorney

The CARES Act and Chapter 11 Bankruptcy

As a response to the public health crisis of COVID-19, President Trump signed the Coronavirus Aid, Relief and Economic Security (CARES) Act into place. The CARES Act includes many new changes and exceptions during the COVID-19 pandemic, including raising the debt ceiling for Chapter 11 debtors. At this time, Chapter 11 debtors may be able to proceed under the Small Business Reorganization (SBRA) Act of 2019. 

What do COVID-19 Changes to Chapter 11 mean for debtors?

In normal conditions, the process of a Chapter 11 case can be costly, which may stop you from filing in the first place to try to save your business. The SBRA Act could have significant benefits for Chapter 11 debtors under new bankruptcy rules in response to the COVID-19 disaster. 

Many businesses looking for financial relief during economic uncertainty may find that it is much easier to file for Chapter 11 bankruptcy at this time. Some of the potential benefits under SBRA that cuts down on costs include: 

  • No creditors committee
  • Creditors cannot file competing plans
  • A separate disclosure statement is not required
  • Payment of quarterly fees to the Office of the U.S. Trustee is not required
  • The new value requirement is waived
  • The requirement that the plan has at least one impaired consenting class is waived
  • A debtor no longer must pay all post-petition administrative expense claims on the plan’s effective date and may instead stretch payments out over three to five years

Many of the most costly Chapter 11 conditions that are usually required during a Chapter 11 case are waved or changed in some way that may make it easier and cheaper for individuals with small businesses. 

What is the new debt limit for Chapter 11 under the CARES Act?

Prior to the CARES Act, the debt limit for a Chapter 11 bankruptcy was $2,725,625. Due to the COVID-19 pandemic, many small businesses and family owned operations may suffer. The CARES Act increases the Chapter 11 debt limit to $7.5 million. The new increase will allow for more businesses to qualify for Chapter 11 so they can get the help they need during this time.

The increase in Chapter 11 debt limits in response to the coronavirus pandemic will only remain in place for a short time. After that, debt limits will go back down to the previous $2,725,625 limit. If you’re exploring options for filing bankruptcy for your small business, don’t wait too long before filing.

What are the benefits of a Chapter 11 during the Coronavirus Pandemic?

Chapter 11 essentially protects businesses from lawsuits and creditors while you work to maintain your financial position. With the increase in economic uncertainty because of COVID-19, Chapter 11 may become a necessary option for businesses to continue to operate while addressing debts. 

Some of the benefits for businesses facing unbearable debts include: 

  • Your business can pay back debts for a lower amount
  • Your business can have a longer period of time to pay debts 
  • Your business can continue to operate while paying back their debts
  • Your business can stop harassment from creditors with an automatic stay

The stress of taking care of your business during the coronavirus pandemic can be overwhelming. Having an attorney by your side throughout this process may not only provide you with a form of comfort but may also provide you with professional guidance and advocacy for the future of your business. 

Call today for a free 30 minute consultation to discuss your situation and how Chapter 11 may help your business survive the effects of the COVID-19 pandemic.