CARES Act | Reorganization, Foreclosure & Bankruptcy

[UPDATED April 2, 2020] On March 27, 2020 the President signed the $2.2 trillion Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). At nearly 900 pages, the CARES Act is too broad to summarize all of the potentially pertinent provisions for every business and individual, and we expect further guidance from the Federal government on these programs in the near future. Therefore, the following is not an exhaustive summary and will be updated as we learn more. To review the full text of the portions of the CARES Act summarized below, or the many other provisions, please see the full text of the bill as signed into law.  

The following is a summary of the CARES Act provisions regarding business reorganization, foreclosures, and Bankruptcy: 

The CARES Act includes provisions to provide financially distressed consumers and small businesses greater access to bankruptcy relief. Among these is a temporary increase to the eligibility ceiling from $2,725,625 of debt to $7,500,000 for businesses filing under new Subchapter V of Chapter 11 of the U.S. Bankruptcy Code (the Small Business Reorganization Act). This threshold increase will sunset after a year and return to $2,725,625.

Chapter 13 debtors whose plans were confirmed prior to the CARES Act but who have nevertheless been directly or indirectly affected by COVID-19 may request a modification of their plans to extend their repayment term up to seven years.

For Chapter 7 and Chapter 13 debtors, COVID-19 related relief will not be treated as “income”.

The CARES Act also temporarily prohibits initiation of foreclosure proceedings against property secured by a federally-backed mortgage until no earlier than May 17, 2020. 

Lenders are required to grant up to 180 day forbearance on federally backed mortgages if borrowers request a forbearance and certify that they are experiencing financial hardship related to COVID-19.

Lenders are restricted from charging fees, penalties or interest above what would be owed if all contractual payments were made on time.

For questions related to navigating bankruptcy, reorganization and foreclosure issues in the current COVID-19 emergency, contact Primmer Piper Eggleston & Cramer PC’s Bankruptcy Team. For questions related to these programs and navigating other provisions of the CARES Act, please contact Primmer Piper Eggleston & Cramer PC’s Financial Services and Banking Law Team.