CARES Act Amends Bankruptcy Code to Aid Struggling Consumer and Small Business Debtors Amidst Covid-19 Pandemic

By: Michael L. Moskowitz and Melissa A. Guseynov

In response to the Covid-19 pandemic and resultant financial and economic distress, President Donald J. Trump recently signed into law the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) to provide a $2 trillion in support of businesses and individuals negatively impacted by Covid-19. The CARES Act includes certain modifications to the Bankruptcy Code to furnish effective and efficient bankruptcy assistance to small businesses and individuals.  More specifically, the CARES Act provides consumer debtors with certain additional protections and provides small businesses with a more efficient bankruptcy process under the Small Business Reorganization Act of 2019 (“SBRA”), which became effective in February 2020.  

          The CARES Act modifies the SBRA, for a period of one year (unless extended by Congress), in that it expands the minimum debt threshold from $2,725,625 to $7,500,000 under the novel Subchapter V of Chapter 11 of the Bankruptcy Code.  Subchapter V under the SBRA was implemented to make Chapter 11 reorganization quicker, less expensive and more efficient for small businesses.  Notably, the SBRA allows debtors with at least half commercial debt and total debts not exceeding $7.5 million to file for bankruptcy relief under Subchapter V of Chapter 11. 

Among other things, Subchapter V provides that: (i) only a debtor can file a plan of reorganization, thereby eliminating a creditor’s right to file a competing plan; (ii) a debtor does not have to tender quarterly U.S. Trustee’s fees; (iii) a creditors committees will not be appointed; (iv) a plan may be confirmed even if all impaired classes vote to reject it; (v) debtor may pay administrative expense claims over the plan term; and (vi) a standing trustee is to be appointed in every case.  Significantly, the standing trustee will not involve him or herself with the debtor’s business operations but will work to expedite the case and provide oversight and supervision.

Secondly, the CARES Act provides individual debtors affected by Covid 19 with more protections and benefits by amending particular provisions of Chapters 7 and 13 of the Bankruptcy Code.  With respect to chapter 13, the CARES Act amended the Code such that debtors with existing confirmed plans who have experienced a Covid-19 related “material financial hardship” may seek plan modifications to lower their payments, including extending the plan term from five to seven years.  In addition, payments received from the Federal government that are related to the Coronavirus pandemic will not be considered part of a debtor’s income in bankruptcy and will not be included in calculating a debtor’s disposable income. 

As explained above, the immediate goal of the Code revisions implemented through the CARES Act and SBRA is to provide relief to consumers and small businesses that are suffering financial hardship due to the Coronavirus pandemic.  Weltman & Moskowitz will continue to follow and report on these amendments and any other Covid-19 related bankruptcy relief. We will keep clients and colleagues informed of the developing impact to both debtors and creditors.  Please feel free to call Weltman & Moskowitz with any bankruptcy questions or challenges you, your colleagues, or clients, may have.

About Weltman & Moskowitz, LLP, A New York and                                                                     

New Jersey Business, Bankruptcy and Creditors’ Rights Law Firm:

Founded in 1987, Weltman & Moskowitz, LLP is a highly regarded business law firm concentrating on creditors’ rights, bankruptcy, foreclosure, and business litigation. Michael L. Moskowitz, a co-founder, focuses his practice on business and bankruptcy litigation, shareholder and partner disputes, business divorce, commercial dispute resolution, as well as a full range of creditor’s rights, foreclosure, adversary proceeding litigation, corporate counseling, M&A, and transactional matters. Michael can be reached at (212) 684-7800, (201) 794-7500 or  Melissa Guseynov is an associate with the firm.  Melissa can be reached at

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