Updates to Bankruptcy Provisions Provided by New COVID-19 Relief Program

This Christmas week, congressional leaders released the text of the new $900 billion COVID-19 relief package. After a week of pushback, President Trump signed the bill into law on Sunday evening. In addition to the $600 per adult stimulus payment, additional PPP funding, housing assistance, and school/university assistance, the bill also provides additional updates on certain bankruptcy provisions. . These amendments, which are set out in Section FF of the Bill “Title X – Bankruptcy Relief”, include the following:

  • With court approval, small business Sub-Chapter V debtors experiencing significant financial hardship due to the pandemic may be granted additional time to pay rent owed on non-residential real estate. Generally, debtors have a 60-day window after the date of the petition in which rent can be withheld as the debtor decides to assume or reject a lease. It is proposed to extend the deadline to 120 days. In addition, debtors in possession or trustees now have 210 days from the date of the petition to assume or reject unexpired non-residential leases. The Code previously required that such decisions be made within 120 days of filing for Louisiana bankruptcy attorney.
  • Payments made by a debtor to a landlord during the 90-day pre-petition preference period (which related to rent due before March 13, 2020) are exempt from preference actions.
  • Utility companies may not terminate service for individual debtors who cannot provide adequate assurance of future performance under Code Section 366, so long as the individual debtor becomes current and remains current within 20 days following the filing of the request.
  • The bill also resolves a lingering issue regarding the eligibility of bankrupt debtors to obtain PPP funds. Now, debtors are specifically allowed to obtain PPP funds on an accelerated schedule. The bill also repeals the terms of any existing loan document that would have prohibited the debtor from obtaining such funds. The previous version of the CARES Act was silent on PPP funding, leading to conflicting bankruptcy court rulings on this issue across the country.

The changes expire in one year for normal cases and in two years for provisions related to PPP loans, Subchapter V cases and rent changes. The bill does not appear to extend the March 27, 2021 end of the expanded $7.5 million debt limit to qualify as a small business debtor under Subchapter V.

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