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The CARES Act and Bankruptcy

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Although not as robust or as swift-moving as many would prefer, the federal government has begun taking steps toward helping individuals and small businesses that are suffering financial hardship as a result of the COVID-19 coronavirus pandemic. The Coronavirus Aid, Relief, and Economic Security Act (CARES Act), enacted on March 27, 2020, offers help to individuals and small businesses that are struggling. Among other things, the CARES Act provides aid to small businesses under Chapter 11 as well as short-term assistance to individual debtors under Chapters 7 and 13 of the federal Bankruptcy Code. The changes generally expire in March 2021 unless Congress takes further action. Continue reading for a discussion of the protections afforded by the CARES Act, and speak with a dedicated California bankruptcy attorney about your options for financial relief.

Small businesses get expanded, expedited reorganization

The Small Business Reorganization Act (SBRA), effective as of February 2020, enacted a subchapter in Chapter 11 that allows businesses with debts under a certain amount to reorganize more quickly and affordably. The SBRA set the debt limit at $2.725 million. The CARES Act increased the debt limit to $7.5 million and applies to new bankruptcies filed after the CARES Act was enacted.

Individual relief under the CARES Act

Other provisions of the CARES Act more directly affect individuals. The CARES Act provides a one-time stimulus payment to all citizens who earn below a certain income threshold. Under the Act, the stimulus payment, and any other coronavirus-related payments from the federal government, are excluded from “income” and “disposable income” for the purposes of determining Chapter 7 eligibility.

Additionally, debtors who are currently in the middle of a Chapter 13 repayment plan can request a modification of their plan if they are experiencing “material financial hardship” due to the coronavirus. Debtors can request an extension of plan payments for up to seven years after the initial plan payment was due, provided they satisfy the hardship threshold. While the definition of “material financial hardship” is not immediately clear, California bankruptcy courts will hopefully be amenable to modifications in light of the widespread economic devastation caused by the pandemic. A seasoned debt relief attorney can help you strengthen your application for modification, given your circumstances.

Speak With a Seasoned and Professional Southern California Bankruptcy Attorney

If you’re struggling with debt and considering bankruptcy, please contact Rounds & Sutter for a free, confidential consultation. With offices in Ventura, Santa Barbara and Westlake Village, we represent clients throughout Southern California, offering qualified, effective legal counsel in the face of life’s challenges.