Key Bankruptcy Amendments in New COVID-19 Relief Package

January 4, 2021

By Lindsey Emerson Raines

Congress’s most recent COVID-19 relief bill was signed into law on Sunday, Dec. 27, as the Consolidated Appropriation Act of 2021 (CAA). Title X of the CAA provides additional bankruptcy relief for individual and corporate debtors, as well as creditors impacted by COVID-19. Most changes are temporary as noted below.

Extension of time for certain small business debtors to perform under non-residential real property leases.

Under prior law, debtors could request an extension up to 60 days after the date of a bankruptcy filing to perform obligations under any unexpired lease of nonresidential real property. Small business debtors in Subchapter V bankruptcy cases experiencing a material financial hardship due to COVID-19 may now seek court approval for an additional 60-day extension due to continuing material financial hardship, for a total of 120 days from the filing date to perform under an unexpired non-residential real property lease. This change will sunset in two years.

Extension of time to assume or reject unexpired non-residential real property leases.

The time for a debtor or trustee to assume or reject an unexpired non-residential real property lease has been extended from 120 days to 210 days from the filing date. This change applies to cases under all chapters and will sunset in two years.  

Reference exception for deferred payments to suppliers and commercial landlords.

A debtor or trustee may not avoid payments made by a debtor to qualifying suppliers and landlords during the 90-day preference period for a “covered payment of supplier arrearages” and/or a “covered payment of rental arrearages.” To qualify as covered arrearages, (i) the debtor and counterparty must have a pre-petition lease or executory contract, and (ii) the lease or executory contract must have been amended after March 13, 2020, to defer or postpone payments. This exception will not apply to the payment of fees, penalties, or interest imposed by the post-March 13, 2020, amendment. This change will sunset in two years. 

Possible PPP loans to bankruptcy debtors.

The CAA indicates PPP loans should be available to bankruptcy debtors—but only if the SBA Administrator sends a directive to the Director of the Executive Office for the U.S. Trustee indicating qualifying debtors are eligible for PPP loans. Assuming the SBA opts to approve PPP loans during bankruptcy, the loans will be available only in cases filed after the date the SBA sends the directive and to certain types of debtors (Subchapter V small businesses, Chapter 12 family farmers, and Chapter 13 self-employed debtors). If the provision becomes effective, it will sunset in two years.

Discharge relief for Chapter 13 debtors.

Bankruptcy courts may grant a discharge of debts to a Chapter 13 debtor even though the debtor defaulted on not more than three monthly payments due on a residential mortgage on or after March 13, 2020, because of a material financial hardship due to COVID-19. Courts can also grant a discharge to a Chapter 13 debtor whose confirmed plan provides for the curing of a default on a residential mortgage when the debtor has entered into a loan modification or forbearance agreement with the lender. These changes will sunset in one year.

This is not an exclusive list of the changes to the Bankruptcy Code, and other provisions will be important to debtors and creditors alike. Significantly, the CAA clarifies that no one may be denied relief under certain CARES Act provisions simply because the person has filed bankruptcy.

Please contact one of our attorneys for assistance.

Lindsey Emerson Raines is an associate in the firm’s Litigation Practice Group. Her practice focuses on business litigation, creditors’ rights and bankruptcy.

Disclaimer: The information included here is provided for general informational purposes only and should not be a substitute for legal advice nor is it intended to be a substitute for legal counsel. For more information or if you have further questions, please contact one of our Attorneys.