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Points to consider
The new Consolidated Credit Act allows the Small Business Administration discretion to choose which small debtors and people can access PPP loans in bankruptcy, in an effort to clarify contradictory court decisions.
The CAA permits debtors in all bankruptcy proceedings was redirect to https://bankruptcyhq.com/ to automatically elect to continue with a non-residential real estate lease for up to 210 days (thus prolonging the 90-day legal period) and gives small company debtors an additional grace period on payments after a deposit.
The new law also gives non-residential real estate owners and providers of products and services who have received deferred payments from a debtor extra protection against “preference” claims.
A number of temporary amendments to Title 11 of the United States Code (the Bankruptcy Code) are included in the new 2021 Consolidated Finance Law (CAA), which are aimed at offering relief to creditors and debtors, both businesses and people.
The CAA was signed into law by President Trump on December 27, 2020, and it is a $900 billion stimulus measure that updates prior legislation from the CARES Act, which was passed last spring.
Below is a summary of nine key components of the new Bankruptcy Code provisions.
Debtors or trustees receive PPP loans
The Paycheck Protection Program (PPP), a forgiving loan programme operated by the Small Business Administration, was established by the CARES bill of March 2020. (SBA). There has been dispute about whether PPP loans are available for bankrupt enterprises since the introduction of the CARES Act. PPP loans are only available to debtors if the SBA administrator issues a letter to the Director of the Executive Office of the United States Trustee approving PPP loans to be available during the bankruptcy.
Small company borrowers, chapter 12 family farmer debtors, and self-employed chapter 13 debtors will all be eligible for PPP loans if the SBA administrator approves them during bankruptcy. Commentators point out that this clause does not alleviate the question because it gives the SBA administrator wide power.
These modifications will be phased out on December 27, 2022.
Conditions for Chapter 13 debtors to be released from debt
A discharge from debts is now available, at the bankruptcy court‘s discretion, for a debtor who has failed to make payments under a Chapter 13 plan if: 1) the debtor defaults on three monthly residential mortgage payments by March 13, 2020, due to financial hardship caused by the COVID-19 pandemic, or 2) the Chapter 13 plan provides that the debtor can remedy a default on a loan residential mortgage and the debtor has entered into a qualifying loan modification.
The debtor will not be free of mortgage debt, but he will be eligible for other debt discharge even if he has not made all of his mortgage payments when they are due under the confirmed plan. This clause will be phased out on December 27, 2021.
Companies that go bankrupt are protected from discriminatory treatment
The CAA alters the Bankruptcy Code to ensure that no one can be denied relief under the CARES Act’s sections 4011 to 4042 simply because they are or have been a debtor in a bankruptcy proceeding. The following provisions of the CARES Act are affected by this amendment:
Foreclosure moratorium and right to request forbearance
Mortgage payment suspension for multi-family properties
Eviction requests are on hold for the time being.
This clause will be phased out on December 27, 2021.
Individual and family farmers and fishers) Modifications and ratification of the plan)
The CARES Act allows borrowers with federally guaranteed residential and multi-family mortgages to seek for forbearance because to COVID-19-related financial hardship. The forbearance period for residential mortgages can last up to 12 months. The mortgagor must pay the deferred mortgage payments in full at the end of the forbearance term. Because the CARE Act’s provisions have produced issues in Chapter 13 cases, the CAA permits qualified agents to file proofs of claim for deferred payments even if the claim deadline has past.
Debtors can also use the CAA to change a confirmed Chapter 13 plan to reflect the deferred payment plan. The bankruptcy court, the US trustee, the Chapter 13 trustee, or any interested party may request a change if a debtor does not amend their plan. These modifications will be phased out on December 27, 2021.
In a subchapter V case, performance under an unexpired non-residential real estate lease
If a debtor is undergoing or has suffered considerable financial hardship as a result of COVID-19, the CAA has extended the time frame for subchapter V small company debtors to enforce an unexpired non-residential real estate lease. The debtor can postpone execution for up to 60 days after filing, and the court can extend the time restriction for another 60 days if the court determines that the debtor is still experiencing hardship as a result of COVID-19.
Any unpaid deferred obligation on confirmation is treated as an administrative expenditure that debtors can repay over time under the confirmed plan. This adjustment only affects Case of Subchapter V, and he is scheduled to retire on December 27, 2022.
Acceptance or rejection of enforceable contracts and leases under section 365 (d) (4) Subchapter V Small Business Debtors – The CAA has extended the time period for Subchapter V debtors who have been financially impacted by the pandemic to assume or reject leases by an additional 60 days, bringing the total time period to 210 days after the filing of the motion, reflecting the maximum time period generally available in Chapter 11 cases. Any claim originating from the 60-day extension will be regarded as an administrative expense priority under Section 507 (a) (2) of the Bankruptcy Code, according to the modification.
In Chapters 7 and 11, all debtors and trustees – The CAA increased the time a debtor has to assume or reject non-residential leases from 120 to 210 days after the restructuring order is issued. The bankruptcy code has been changed, and it will remain in effect until December 27, 2022.
Preferably, protection for covered payments.
Owners of non-residential real estate and providers of goods and services who received deferred payments from a debtor after March 13, 2020 are given further protection under the CAA. A debtor or trustee can no longer recover these deferred payments under Section 547 of the Bankruptcy Code. Ideally, as long as the debtor and the owner or supplier are both present:
Before declaring bankruptcy, you signed a lease or an enforceable contract.
After March 13, 2020, any changes to the lease or enforceable contract would be considered null and void.
Initial payments due under the lease or an enforceable contract that have been deferred
The CAA, however, clearly excludes some fees, penalties, and interest from this choice protection exemption. This change will be in effect for the next two years and will apply to bankruptcy cases filed prior to the two-year deadline.
Customs duties are given priority attention
Section 507 (d) of the Bankruptcy Code is amended by the CAA to allow entities that pay a customs duty to the US government for the importation of commodities to be subrogated to government priority status under Section 507 (b) (8). (F). This change is only in effect for a year.
Utilities treatment
Under Section 366 of the Bankruptcy Code, the CAA protects individual debtors by prohibiting utility companies from terminating service if the debtor does not provide adequate insurance for future utility payments, as long as the debtor I makes a utility payment within twenty (20) days of filing for bankruptcy and (ii) continues to make timely payments throughout the case. This amendment is only good for a year.
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