On March 27, 2022, the CARES Act Amendments to the Bankruptcy Code expired, repealing numerous temporary safe harbor provisions afforded to consumer debtors and small business owners. The CARES Act was signed into law on March 27, 2020. The Act’s bankruptcy-specific amendments were set by Congress to terminate after one year. The sunset on these provisions was extended an additional year on March 27, 2021, pursuant to the Covid-19 Bankruptcy Relief Extension Act.
The CARES Act and subsequent Bankruptcy Relief Extension Act were enacted to provide greater accessibility to bankruptcy relief after the onset of the novel Coronavirus pandemic.
The following temporary amendments to the Bankruptcy Code have now officially been repealed two years after CARES was enacted:
Amendment: The Temporary Exclusion of Stimulus Payments from Current Monthly Income
§ 101(10A) The term “current monthly income” excludes – (V) Payments made under Federal Law relating to the national emergency declared by the President under the National Emergencies Act (50 U.S.C. 1601 et seq.) with respect to the coronavirus disease 2019 (Covid-19).
§ 1325(b)(2). Confirmation of Plan [T]he term “disposable income: means current monthly income received by the debtor (other than payments made under Federal law relating to the national emergency declared by the President under the National Emergencies Act (50 U.S.C. 1601 et seq.) with respect to the coronavirus disease 2019 (Covid-19)…)
Temporary Impact: This amendment had the effect of allowing debtors to access bankruptcy relief without having to sacrifice their federal stimulus funds for the benefit of creditors. Additionally, federal stimulus funds were not used to determine a debtor’s current monthly income or disposable monthly income for purposes of the means test. This exclusion of federal stimulus funds from an individual’s current monthly income allowed more individuals to qualify for chapter 7 relief. It also afforded a reduced unsecured dividend repayment for over-median individuals who filed for Chapter 13 after the act’s passing.
After Repeal: Consumer cases filed on or after March 28, 2022 must include any federal stimulus funds received during the six-month look back period for purposes of preparing the statement of current monthly income, the means test under § 707(b), and disposable income calculation under § 1325(b). Any stimulus funds the debtor continues to receive must also be considered disposable monthly income. Such funds on hand at the time a case is filed are considered to be property of the estate, which can be exempt under applicable state or federal bankruptcy exemptions.
Amendment: Plan Modification Extensions for Chapter 13 Debtors
§ 1329. Modification of Plan After Confirmation.
(d)(1) Subject to paragraph (3), for a plan confirmed prior to the date of enactment of this subsection, the plan may be modified upon the request of the debtor if –
(A) the debtor is experiencing or has experienced a material financial hardship due, directly or
indirectly to the coronavirus disease 2019 (COVID 19) pandemic; and
(B) the modification is approved after notice and a hearing.
(2) A plan modified under paragraph (1) may not provide for payments over a period of years that expires more than 7 years after the time that the first payment under the original plan was due.
(3) Sections 1322(a), 1322(b), 1322(c), and the requirements of 1325(a) shall apply to any modification under paragraph (1).
Temporary Impact: This amendment applied only to consumer chapter 13 cases that were confirmed as of March 27, 2020. It had the unintended effect of excluding many debtors whose matters were filed in February or early March, 2020, who equally suffered a financial setback due to the pandemic, but whose plans were not yet confirmed. For eligible cases with plans that were confirmed as of March 27, 2020, chapter 13 debtors were permitted to extend the repayment term of their plan by up to an additional 24 months, for plan not to exceed 7 years. By contrast, the Bankruptcy Code prohibits chapter 13 plans from exceeding 60 months, or, 5 years in length. In addition to having a confirmed plan as of March 27, 2020, eligible debtors had to demonstrate through the filing of a plan modification that they suffered a direct or indirect material financial hardship (such as loss of income due to illness or mandatory lockdown) because of the coronavirus pandemic.
After Repeal: There is a split of decisions on whether plan modifications filed under §1329(d)(1) had to be filed by March 27, 2022 or approved by March 27, 2022 to take advantage of the optional extension. Bankruptcy court decisions in plan modifications that were filed before March 27, 2022 but were subject to court approval following expiration of the relevant notice period are just beginning to come out in bankruptcy courts across the country. No appeals have been filed in the handful of bankruptcy court opinions rejecting unopposed modifications after March 27, 2022.
Amendment: Expansion of a “Small Business Debtor”, and Increase in Debt Limit for Small Business Debtors under Subchapter V of Chapter 11
§ 1182 Definitions
- Debtor. – The term “debtor” –
(A) subject to subparagraph (B), means a person engaged in commercial or business activities (including any affiliate of such person that is also a debtor under this title and excluding a person whose primary activity is the business of owning single asset real estate) that has aggregate noncontingent liquidated secured and unsecured debts as of the date of the filing of the petition or the date of the order for relief in an amount not more than $7,500,000 (excluding debts owed to 1 or more affiliates or insiders) not less than 50 percent of which arose from the commercial or business activities of the debtor;
Temporary Impact: This amendment to subchapter V of chapter 11 had the effect of temporarily increasing the eligibility threshold for small businesses with total debts of less than $7,500,000. This increase in the debt limit for eligible small business debtors from $2,725,625 allowed more debtors to take advantage of the cost and time efficient subchapter V bankruptcy alternative to a traditional chapter 11.
After Repeal: Following the repeal on March 27, 2022, and for any cases filed after April 1, 2022, small business debtors must have noncontingent liquidated secured and unsecured debts of less than $3,024,725 to qualify for this expedited chapter 11 relief. The increase from $2,725,625 to $3,024,725 reflects the tri-annual routine debt limit adjustment made by the Judicial Conference. The sunset on the expansion of qualifications for a small business debtor under subchapter V of chapter 11 has significantly reduced eligibility for would-be debtors back to the pre-covid debt limit, adjustment notwithstanding. A recently introduce bipartisan Senate bill to permanently increase the small business debt limit back to the CARES Act debt ceiling is pending.