Is there life after the Payroll Protection Program for troubled small businesses?
Many small businesses obtained help from the federal government during the COVID-19 pandemic by applying for and receiving a Payroll Protection Loan from the Small Business Administration Payroll Protection Program (PPP) that was designed to provide payroll support for employers. The program moved employees off state unemployment programs and enabled employers to bring them back to work after receiving a forgivable loan to support payroll and certain overhead expenses. The program was successful allowing many employers to bring back their employees, but the money only covers eight weeks of payroll. What happens if a business is still unable to reopen fully and recover sufficient cash flow to support the business?
The changes to Chapter 11 of the Bankruptcy Code enacted in February 2020 to provide streamlined procedures for small business bankruptcy cases have been temporarily expanded to provide relief for a greater number of small businesses due to the effects of the COVID-19 pandemic. In addition, temporary changes have been made to the ability of Chapter 13 debtors to modify confirmed plans to extend payments.
An increased debt limit under the Bankruptcy Code Chapter 11 Small Business Procedures allows more businesses to obtain streamlined relief.
The Coronavirus Aid, Relief and Economic Security (CARES) Act, passed by Congress and signed into law by the President on March 27, 2020 to address issues raised by the COVID-19 pandemic temporarily increases the debt limit for a small business to qualify under Chapter 11 subchapter V to $7,500,000. The increased debt limit will remain in effect from the date of enactment of the legislation for a period of one year, thereafter the debt limit will return to the $2,725,625 limit that was set when the original changes to the Code were made when small business subchapter was established. Temporarily raising the debt limit by half a million dollars will allow many more businesses to qualify for small business treatment under Chapter 11 of the Bankruptcy Code.
Temporary changes available to Chapter 13 Debtors allow a confirmed plan to be modified to extend payments.
For Chapter 13 debtors, another temporary change in the Bankruptcy Code assists individuals that have a plan of reorganization in a Chapter 13 case that was confirmed prior to the enactment of the Act. CARES Act § 1113(b) permits a debtor who has experienced a material financial hardship, directly or indirectly, due to the COVID-19 pandemic to seek a modification of the plan that will extend the period of time for payments on claims for up to seven years after the date the first payment was due after plan confirmation.
The bottom line.
There is a brief window to obtain expanded Bankruptcy relief under the recently enacted legislation designed to provide assistance to individuals and businesses adversely affected by the COVID-19 pandemic. Do not wait to seek a remedy to save your small business or your home.