Businesses have Powerful New Weapons in Solving Financial Problems

Julianne Frank, Esq

All rights reserved 2020

In my prior post, we discussed how CARES may or may not get you your special subsidy check from the government. Today, we turn our attention to the future of bankruptcy given the monumental impact Coronavirus is having, and will continue to have, on our economy.  If you find yourself having to consider bankruptcy for yourself or your business in the days ahead, there are some interesting things that have changed under CARES.

One of the most significant changes concerns businesses.

A month before the Coronavirus crisis, Congress passed laws that simplified Chapter 11 for small businesses (SBRA—Small Business Reform Act).  Chapter 11 had been out of reach for many mom-and-pop businesses because of its complication and expense. The new version of Chapter 11, called a “Subchapter V Chapter 11”, streamlined the process.  Now, small business owners have a cost-effective mechanism to save their troubled businesses.

On March 27, even more small businesses became eligible for SubV Chapter 11.  The cut-off point for eligibility has been raised from 2.7 Million in annual revenue to 7.5 Million in revenue.  Many more businesses will be able to use this powerful tool.

Individuals experiencing distress will also have increased access to the bankruptcy system, or if already in bankruptcy, will have more tools.

For example, if you are in the middle of a Chapter 13, your five-year plan can now be extended for 2 years.

Let’s see you are seeking to file a Chapter 7 but you are right on the edge of eligibility?  If you receive Coronavirus-related help from the federal government, do those dollars get included in the Means Test that is used to see if you qualify for Chapter 7?

Thanks to the efforts and input of the American Bankruptcy Institute, the answer is NO. For the next year, and longer if extended by Congress, CARES aid is excluded from CMI (Current Monthly Income)

An unanswered question is whether your Coronavirus aid funds are exempt assets. If you put them in your bank account and then file bankruptcy, can you claim them as exempt?  The law is silent on that issue, but the ABI has asked that it be addressed in the likely amendments to CARES that are around the bend.

If you have any questions on whether bankruptcy may help you with the current financial crisis, please call at (561) 220-2528 or email us at