Effects of the CARES Act on Bankruptcy


Apr 3, 2020

Among its sweeping provisions affecting many aspects of the economy, the recently-enacted Coronavirus Aid, Relief, and Economic Security Act (“CARES Act’) (full text available here) contains temporary but substantial, changes to portions of the United States Bankruptcy Code concerning small business and individuals. These changes affect cases filed by individuals under Chapter 7 (liquidation) and Chapter 13 (individual reorganization) of the Code, and also affect small businesses in cases filed under the also recently-enacted Small Business Reorganization Act, which created a new subchapter of Chapter 11 (business reorganization) that is commonly known as “Subchapter 5.”

For cases filed under Chapter 7 and Chapter 13 of the Code, the CARES Act makes the following year-long changes:

As indicated above, these changes are in place for one year following enactment of the CARES Act; so, until March 27, 2021.

With regard to Subchapter 5 of Chapter 11 – which, in short, provides for an abbreviated Chapter 11 business-reorganization procedure that is specifically oriented toward providing big-league bankruptcy relief to small businesses – the CARES Act greatly increases the number of potential small businesses that may file under the subchapter by increasing the debt limit for eligible businesses from $2,725,625.00 to $7,500,000.00. What does this mean? Before the change, only businesses with approximately $2.7 million in total debts (secured and unsecured) as of the date they filed for bankruptcy could take advantage of this new cost-effective and (relatively) speedy bankruptcy process. Now, and until March 27, 2021, businesses with up to $7.5 million in total debts may file under Subchapter 5, providing greatly-expanded relief to small businesses in this unprecedented time.

The foregoing article is prepared by attorneys Christopher J. Waivers and John C. Bircher III (Mr. Bircher is a Board Certified Specialist in Consumer and Business Bankruptcy Law, as designated by the NC State Bar Board of Legal Specialization) of White & Allen, P.A. in order to provide general information to interested parties who wish to learn more about these topics discussed. This article is not intended to give, and should not be relied upon for, legal advice in any particular circumstance or fact situation, and does not establish an attorney-client relationship. If you would like additional information or to discuss your specific situation, please contact White & Allen, P.A. by calling 252-638-5792.

White & Allen, P.A. is a full service law firm in eastern North Carolina. Since we opened our doors in 1927, our reputation has been built on trust.