Provisions Affecting Bankruptcy in CARES Act Expire

Provisions Affecting Bankruptcy in CARES Act Expire

Following in the footsteps of COVID-19 mortgage forbearance and the eviction moratorium, several provisions in the CARES Act affecting bankruptcy have expired.

The Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law on March 27, 2020. A year later, the Act’s bankruptcy provisions were extended another year. Those bankruptcy amendments expired on March 27, 2022.

The concluded provisions affect bankruptcy for individuals and businesses in Pennsylvania and throughout the country.

How Expired Provisions Impact Personal Bankruptcy

The CARES Act included a significant adjustment to how “current monthly income” and “disposable income” are calculated.

An individual must pass the means test to qualify for Chapter 7 bankruptcy. Their income during the six months before filing for bankruptcy is compared to the median income of the state. If the income is below the median, they pass the means test. The CARES Act included a stipulation that any COVID-related stimulus money would not be included in the income analysis. The purpose of the amendment was to not disqualify someone from eligibility because of COVID-19 stimulus payments.

Income is also an important factor in Chapter 13 bankruptcy. Disposable income is weighed in determining how to restructure the outstanding debt into a payment plan. The CARES Act amendment excluded COVID-related payments from being included as income.

The act also gave a possible reprieve to those who were currently under a Chapter 13 repayment plan. If someone was struggling to make their monthly payments, the CARES Act permitted the potential for revising the payment plan, after notice and a hearing. If they were experiencing financial hardship due to the COVID-19 pandemic, they could request a temporary suspension of plan payments. The Chapter 13 plan could also be extended up to seven years after the first payment under the original confirmed plan became due.

These provisions expired on March 27, 2022.

Previously expired amendments (Dec. 27, 2021) enabled some debtors to receive a discharge in a Chapter 13 case even if they missed up to three mortgage payments due to a COVID-related hardship or entered mortgage loan forbearance or modification.

How Expired Provisions Impact Commercial Bankruptcy

On February 19, 2020, the Small Business Reorganization Act became effective. This law created a new component in Chapter 11 bankruptcy. Congress created Subchapter V as a more economic and efficient way for a small business to file for bankruptcy through Chapter 11.

Through Chapter 11, businesses can restructure their organization and their debts with the goal of emerging more profitable. Many small businesses struggled to meet the regulatory (and expensive) demands of Chapter 11 and instead felt forced to liquidate and close their business through Chapter 7.

Subchapter V allows a small business to reorganize under a less-demanding version of Chapter 11, if the business debt is not over a certain level. Prior to COVID-19, the debt limit was placed at $2,725,625. The CARES Act temporarily increased the debt limit to $7.5 million, enabling more businesses to qualify for the simplified Subchapter V. Effective March 28, 2022, the eligibility threshold returned to $2,725,625.

Free Initial Consultation about Bankruptcy

Filing for bankruptcy, whether personal or for a business, is a weighty decision. With the help of an experienced lawyer at Scaringi Law, you can weigh the pros and cons to make an informed decision.

Should a bankruptcy filing make sense in your case, our knowledgeable team will be your advocate throughout the entire process. Our know-how can guide individuals through consumer bankruptcy as well as businesses through extremely complex reorganization.

Schedule a consultation to better understand your bankruptcy options. Reach out onlineor call (717) 775-7195. We have six convenient locations throughout central Pennsylvania.


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