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Small Businesses to Get Added Bankruptcy Relief in Virus Package (1)

March 26, 2020, 12:59 PMUpdated: March 26, 2020, 4:09 PM

More small businesses would be able to take advantage of a new provision of the bankruptcy code aimed at making the reorganization process cheaper and easier under the Senate-passed $2 trillion coronavirus relief package.

The bill (H.R. 748), passed Wednesday by the Senate 96-0, would raise the debt threshold for small businesses to take advantage of the Small Business Reorganization Act, from the current $2.7 million to $7.5 million. The House is set to vote on the bill Friday.

The SBRA, which was signed by President Trump in August, created a subchapter to the bankruptcy code’s Chapter 11 to cut the legal costs incurred by small corporate debtors and allow them to restructure on an expedited timeline.

The National Bankruptcy Conference, a nonpartisan group of attorneys, law professors, and bankruptcy judges that advises the government on bankruptcy policy, earlier this week had urged raising the debt threshold so more small businesses could qualify.

The measure also would exclude payments related to coronavirus relief from “income” for bankrupt individuals, and would clarify that such relief isn’t considered disposable income for purposes of confirming a consumer bankruptcy plan under Chapter 13 of the Bankruptcy Code.

Bankrupt individuals and households receiving government checks would therefore be spared from turning over their stimulus payments to creditors.

Individuals and families currently in Chapter 13 also would be able to modify their payment plans if facing a material financial hardship as a result of the pandemic. The creditor repayment plans, which typically last for five years, can be extended for another two years under the bill, consumer bankruptcy lawyer Ed Boltz said.

“That’s going to be a real help,” said Boltz, a board member of the National Association of Consumer Bankruptcy Attorneys. “The five year limit becomes a real burden because if they fall behind or have problems, they have a decreasing amount of time to fix the problem that arose.”

All the bankruptcy relief provisions would sunset one year after enactment.

For additional legal resources, visit Bloomberg Law In Focus: Coronavirus (Bloomberg Law Subscription).

(Updates with additional reporting throughout.)

To contact the reporter on this story: Alex Wolf in New York at awolf@bloomberglaw.com; Laura D. Francis in Washington at lfrancis@bloomberglaw.com

To contact the editor responsible for this story: Seth Stern at sstern@bloomberglaw.com

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