Bankruptcy Code provisions temporarily applied because of the COVID-19 pandemic.
The Means for Monthly Income Calculation
Individual debtor’s disposable income cannot exceed a certain level and the debtor’s expenses must be reasonable and necessary to meet the threshold to qualify under Chapter 7. Nevertheless, under the CARES Act an individual debtor’s Covid-19 stimulus payments are excluded from the “current monthly income” calculation.
The Small Business Debtor who files under Subchapter V,1 the Family Farmer who files under Chapter 12, and the Individual Wage Earner who files under Chapter 13 may qualify to obtain Paycheck Protection Program (“PPP”) Loans while in bankruptcy — provided court approval is obtained. This provision is contingent on the SBA Administrator submitting a written report to the Director of the Executive Office for the United States Trustee that the debtor is eligible to receive PPP Loans.
Generally speaking, executory contracts, such as leases, are contracts whereby both parties are required to perform. Subchapter V debtors experiencing financial hardship due to COVID-19 may seek a 60-day extension to perform under the commercial lease — from the date of the bankruptcy . The debtors may obtain an additional 60-day extension provided, however, that any such extension cannot be beyond 120 days from the date of bankruptcy, and that said 120-day period also establishes the date on which the debtor must assume or reject the commercial lease.
This provision sunsets after December 27, 2022, and further applies to any Subchapter V debtor who files before December 27, 2022.
Utility companies are prevented from cutting off service to individual debtors as long as they (a) make a payment to the utility for any debt owed to the utility for service provided during the 20-day period beginning” on the petition date and (b) after such 20-day periods, make a payment to the utility for service provided during the pendency of the case when such a payment becomes due.
This special provision sunsets December 21, 2021.
Stimulus Payments for individuals are not deemed to be property of the estate. There is no sunset provision.
Certain prepetition payments for rental arrearages to commercial landlords and certain “covered payment[s] of supplier arrearages” will not be avoidable as preferences so long as they are made in connection with a forbearance agreement or arrangement with a landlord or vendor, made on or after March 13, 2020. The payments made to the landlord due under a forbearance cannot exceed the amount due under the agreement as it existed prior to March 13, 2020. The “covered payments” made to the vendors/suppliers can not include any increased charges made after March 13, 2020 nor fees, penalties, or interest in excess of what would normally be due if the debtor was paying on time.
This provision sunsets on December 27, 2022 and may be utilized by any debtor who files before December 27, 2022.
Discharge of Chapter 13 Debtors and Residential Mortgage Payments
Individual debtors under Chapter 13 may obtain a discharge even if the debtors have not completed payments to the Chapter 13 trustee or home mortgage lender if they (a) missed no more than three mortgage payments due to “material financial hardship” caused by the COVID-19 pandemic that are being paid under a plan to cure a default or (b) are making cure payments and have entered into a forbearance agreement or loan modification with the holder or servicer of the mortgage.
This provision sunsets on December 27, 2021.
- The Subchapter V debtor is a small busines debtor with non-contingent, secured and unsecured debt less than $2,725,625 — and under the CARES Act is temporarily $7.5 million. Subchapter V is a much more simplified Chapter 11 that allows a debtor to spread its debt over 3 to 5 years, during which time the debtor must devote its projected disposable income to paying creditors.