Changes to the Bankruptcy Code Under the CARES Act

March 2020

On Friday, March 27, 2020, Congress passed, and the President signed the $2.2 Trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act, in response to the COVID-19 pandemic. This Act makes noteworthy and immediate changes to the U.S. Bankruptcy Code, which are outlined below.  

Chapter 11:

The maximum debt limit for a business to qualify as a “small business debtor” is increased from $2,725,625 to $7,500,000. 

This change allows more businesses to qualify as “small business debtors” under the Bankruptcy Code. A “small business debtor” may navigate Chapter 11 with streamlined procedures and more efficiently.   

Chapter 13: 

i. Payments to individuals as a result of the COVID-19 pandemic are excluded from the disposable income calculation for purposes of confirmation of the Chapter 13 plan.

ii. Confirmed Chapter 13 plans may be modified due to financial hardships related to the pandemic. 

iii. Chapter 13 debtors with a confirmed plan may ext304.205.6373 end the time limit to repay creditors from 5 years to 7 years.  

Chapter 7:        

Payments to individuals as a result of the COVID-19 pandemic are excluded from the definition of current monthly income. Accordingly, these payments will not be considered in the means test to determine if a debtor is eligible for chapter 7.

The changes made by the Act are effective as of Friday, March 27, 2020, and will terminate one year from that date. 

Please feel free to reach out to Jim Lane at 304.205.6373 or Eric Johnson at 304.205.6377 if you have any questions or would like to discuss further.  

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