COVID-19 Brings Changes to Business Bankruptcy in Cost and Procedure

By Matthew J. Roberts and William J. Cook

In the world of business during and after the COVID-19 pandemic the Federal Government has made changes to some of the bankruptcy laws to aid businesses who are struggling to make ends meet. Because of the closures caused by the COVID-19 pandemic, more and more businesses are looking to bankruptcy as a real means to stay in business. 

Chapter 11 bankruptcy is not the typical bankruptcy people think of. Chapter 11 allows for a business to propose a payment plan for their creditors and still maintain control over the operations of the business. This restructuring is done via a court approved plan, and although the debtor retains control over the business, they are still subject to court oversight. The Federal Government made multiple additional changes to the Small Business Reorganization Act (SBRA), that was signed into law last August, with the passing of the CARES Act.

One major change was to change the maximum debt amount allowed to petition for bankruptcy, from $2.6million to $7.5 million for debtors. This means that those with higher debt amounts are not barred from petitioning for bankruptcy. As with the CARES Act, these new amendments are instances where the federal government wants to make this process more accessible to more businesses. These amendments also made the process of filing more streamlined and cost effective.

One example is that during the payment plan confirmation process, under normal circumstances, creditors can come in and object to payment plans by filing motions, which in turn increase attorney costs and court costs. Under these new amendments, payment plans can be confirmed over the objections of creditors. Meaning that if a creditor is adamant in getting paid 100% of the debt, but 75% would be a fair and equitable compromise, the judge can rule over the creditor and allow the plan to move forward. These changes also include filing payment plans sooner.

With these changes in the bankruptcy process it is likely that there will be an increase in bankruptcy filings due to it being more affordable for the foreseeable future. 

For more information or to schedule a consultation please contact the Law Offices of Burton A. Brown.

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