bankruptcy law changes

Temporary Changes in Bankruptcy Law Due to COVID-19

In March of 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was passed, with a historic $2.2 trillion of economic stimulus aide, to try to offset the social and economic damage inflicted by COVID-19

Along with so many other changes for most of us in recent months, we see that bankruptcy legislation has changed a little, too. What many don’t realize is that the CARES Act temporarily changed federal bankruptcy law. This includes some of the procedural guidelines set forth by Chapter 5 but also on filing allowances for some of the most common types of bankruptcy, like Chapter 7 or Chapter 13. 

What Are The Major Differences Between Chapter 7 and Chapter 13 Bankruptcy?

Chapter 7 bankruptcy frequently applies to eliminating any unsecured debt, like credit card or medical debt. Essentially, it wipes the debt slate clean. It may also involve the liquidation of some of the debtor’s assets to go towards debt repayment. Note, Chapter 7 does not cover all varieties of debt, so it may not be suitable for everyone. Student loans, for example, cannot be eliminated with this type of bankruptcy.

Chapter 13 bankruptcy allows debtors to restructure their debt by making significantly lowered payments for the duration of 3-5 years. It’s not a complete debt elimination, but the reduction in debt allows many to get back on their feet while fulfilling at least some part of their debt obligation. 

Important to both of these kinds of bankruptcies are “monthly income” and the amount of “disposable income” one has on hand.  For many people living through the Coronavirus pandemic, those figures may have changed drastically in the last few months. And, while many may not have previously passed the Means Test in qualifying for bankruptcy, they may now.

Here are some facts you need to know, whether you have already filed for bankruptcy or are considering filing for bankruptcy in the near future:

  • Payments made under federal law to individuals related to the COVID-19 pandemic do not count in Chapter 7 or Chapter 13 bankruptcy filing as “current monthly income” and do not have to be reported as such.
  • Any payments made to individuals relating to the COVID-19 pandemic under federal law do not count in bankruptcy filing as “disposable income” and therefore cannot be included in the debt repayment plan for Chapter 13 bankruptcies. This means that your repayments won’t go up like they would otherwise. 
  • Past filers of Chapter 13 can apply for a modified repayment plan based on any (direct or indirect) hardships experienced due to COVID-19. Your monthly payments could even be greatly reduced by this aspect of the CARES Act.
  • Chapter 13 debtors may also qualify for an extended repayment plan of up to seven years if qualifying under the economic hardship resulting from COVID-19.

Figuring out whether you qualify for bankruptcy or may be eligible for a modified bankruptcy plan is best to ascertain with the help of a qualified bankruptcy attorney to walk you through the process.  At the Law Offices of Bill F. Payne, we can guarantee up-to-date legal information and advice in an ever-changing world.

Contact us today to set up your free initial consultation.

Businesses Seek Bankruptcy Protection Due to Coronavirus

With so many businesses being shuttered during the COVID-19 pandemic, it’s no surprise that even well-established major corporations are pursuing bankruptcy.  J. Crew was among the first of the major corporations to file for bankruptcy amidst the Coronavirus shutdown, marking an end of an era for a major American apparel retailer with international acclaim. Its retail services were deemed non-essential and, with consumer budgets tighter than ever, it was hit hard, along with much of the retail industry.

Other giants who have filed for bankruptcy in recent months include Pier One Imports, Art Van Furniture, and even Whiting Petroleum Company, who experienced huge losses from the crash in oil prices. Unfortunately, many more are projected to suffer the same fate.  

While it’s not just retail that is (and will be) impacted by the Coronavirus, there are some factors to consider when looking at some of the industries most heavily impacted by a global pandemic. Luxury retail and travel-related services will likely continue to experience the biggest hardships.

The early statistics on the economic fallout of COVID-19 are in and, in addition to retail, have identified the following industries as being the hardest hit so far

Airlines:

This one may seem obvious, since most borders are currently closed and only essential travel is allowed.  However, even in spite of a $58 billion dollar bailout from the federal government, many airlines are projected to file for bankruptcy in the coming months. This also has projected downstream effects for the aerospace industry, as well. 

Casinos and Gaming:

With most casinos and gaming facilities shut down completely, this entire industry is at a stand still, until it’s time to safely re-open those sectors of the economy. Even then, it will be a slow start, while consumer confidence gradually re-builds.

Automotive:

The automotive industry, including retail parts and manufacturing, is also seeing the impact of COVID-19. Consumers are holding off on non-essential repairs, which means automotive shops and dealerships aren’t as busy. Unfortunately, it also means that the automotive parts industry has seen a huge decline in their demand. Factory shutdowns due to the pandemic have also played a factor in parts and equipment availability, even for businesses which are deemed essential. 

Oil and Gas Drilling:

With the demand for travel of any kind being lower than it has been in decades, oil prices dropped precipitously in recent months. It’s little surprise that these corporations are also experiencing financial hardship during the Coronavirus. 

What do these large bankruptcies mean for small business owners?

There is good news for small businesses considering bankruptcy during this time. Some of the COVID-19-related changes concern federal bankruptcy law.  This is, in part, owing to the record number of large corporations having to file for bankruptcy protection at this time. 

Many small businesses may even find bankruptcy as a way to stay afloat during this pandemic, owing to recent changes in Chapter 11 bankruptcy filing guidelines.  The Small Business Reorganization Act (SBRA), for example, made small businesses with under $2.7 million in debt eligible for debt restructuring. The recent federal CARES Act for economic stimulus upped that threshold to $7.5 million to qualify for Chapter 11. 

If you’re wondering whether your business could be eligible for debt restructuring during COVID-19, contact the Law Offices of Bill Payne, P.C., an experienced bankruptcy attorney with more than 30 years helping businesses learn what their options are. There’s no need to drown in debt during a pandemic, and we are here to help you through that process with a free consultation to discuss your unique situation.