The CARES Act and its Impact on the Bankruptcy Code

On Friday, March 27, 2020, President Trump signed the “Coronavirus Aid, Relief and Economic Security Act” (CARES Act), providing a $2 trillion economic stimulus for U.S. industries and citizens faced with the challenges of the COVID-19 coronavirus.

Appearing in Section 1113 of the CARES Act are amendments to the Bankruptcy Code (Title 11 of the U.S. Code) aimed at providing small businesses and consumers greater access to bankruptcy relief.  The significant provisions relevant to small businesses amend the Small Business Reorganization Act of 2019 (SBRA, subchapter V of chapter 11 of the Bankruptcy Code) to increase the eligibility threshold for small businesses filing under the SBRA.  Currently, small businesses with an aggregate amount of debt not more than $2,725,625 are eligible to file a case under the SBRA.  The CARES Act increases this debt threshold to $7,500,000, providing broader access to the SBRA.  These amendments will sunset a year from the enactment of the CARES Act.

While the SBRA is only newly in effect, this amendment coupled with the economic impacts of the COVID-19 coronavirus likely will lead to broader use of the SBRA and an increase in the number of filings over the next year.

If you have questions pertaining to this article or other bankruptcy & restructuring matters, please contact our bankruptcy and restructuring team: Nate Sinn at [email protected], Matt Matheney at [email protected] and Heather Heberlein at [email protected].