Bipartisan legislation that provides temporary bankruptcy relief provisions under the CARES Act has been extended after it was signed into law by President Joe Biden.

The COVID-Bankruptcy Relief Extension Act of 2021 (HR 1651) extends the debt limit from $2.7 million to $7.5 million for small businesses that choose to file Chapter 11 bankruptcy under subchapter V. It also allows individuals to seek hardship modifications related to COVID-19. The law, which originally was scheduled to sunset March 27, is extended for another year.

“While the economic strains of the COVID-19 pandemic linger, these important extensions provide another year of enhanced bankruptcy protections for struggling small businesses and consumers,” says Amy Quackenboss, executive director of the American Bankruptcy Institute. “ABI appreciates the prompt efforts of Congress and the administration to ensure that households and small businesses continue to have greater access to the financial fresh start of bankruptcy.”

The law also:

  • Excludes coronavirus-related payments from the United States government from being considered income for the purposes of filing bankruptcy under chapters 7 and 13.
  • Clarifies that the calculation of disposable income will not include coronavirus-related payments, for confirming a chapter 13 plan.
  • Allows individuals and families who are already in chapter 13 to seek payment plan modifications for as much as 7 years if a material financial hardship is occurring as a result of the coronavirus pandemic.

“The Small Business Reorganization Act has served as a lifeline for struggling businesses throughout the COVID-19 pandemic,” says Rep. Ben Cline, a Virginia Republican. “Since its inception, 80% of small business debtors have chosen to proceed under the provisions of this bill meaning more entrepreneurs have been able to keep their doors open and employees on payroll during these uncertain times. By extending the debt threshold for eligibility, significantly more businesses can take advantage of this bill.”

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