The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) established the Paycheck Protection Program (PPP), a lending program for small businesses pursuant to which up to 100 percent of the principal loan amount is forgivable. While the PPP program has been a boon to business struggling in light of the ongoing pandemic, the SBA has sought to limit access by bankrupt borrowers, eliminating a significant number of otherwise eligible businesses and creating significant legal questions and issues.

On March 27, 2020, President Trump signed into law the Coronavirus Aid, Relief, and Economic Security Act, Public Law No. 116-136 (the “CARES Act” or the “Act”), the stimulus package designed to mitigate the widespread economic impacts of the coronavirus (“COVID-19”). The Act includes important temporary modifications [1] to Subchapter V of the Bankruptcy Code (the “Code”), applicable to small -business debtor reorganizations.

Temporary Increase in Debt Limit

On March 27, 2020, the President signed into law the historic Coronavirus Aid, Relief, and Economic Security Act (“CARES Act” or “Act”), a $2.2 trillion stimulus package designed to mitigate the widespread economic effects of the novel coronavirus (“COVID-19”). The Act includes several temporary modifications to chapter 7 and chapter 13 of the U.S. Bankruptcy Code.^[1] This alert details these modifications as follows:

Certain Federal Payments Excluded From Definition of “Income”

The Bankruptcy Code prohibits a chapter 13 debtor from modifying a mortgage lien on the debtor's principal residence. Even in situations in which a secured creditor fails to file a proof of claim or otherwise participate in the bankruptcy proceeding, the Bankruptcy Code allows a secured creditor's lien on a primary residence to pass through the bankruptcy unaffected. However, a recent decision from a bankruptcy court in Texas illustrates the risks to secured creditors of blind reliance on these statutory protections.

A common issue that arises in many bankruptcy cases is whether a creditor who refuses to return collateral that he repossessed prior to the petition date violates the automatic stay. In February, the Tenth Circuit widened a circuit split by adopting the minority position that to violate the automatic stay in bankruptcy a creditor must take action, not merely retain the property of the estate. The Bankruptcy Code's automatic stay provision, 11 U.S.C. 362, prohibits any post-petition "act to obtain possession of property of the estate or ...

Major changes to bankruptcy rules that govern the administration of consumer bankruptcy cases, and Chapter 13 cases in particular, were recently approved by the Supreme Court and transmitted to Congress.1 After several years of drafting and debate by the rules committee, these rule amendments will become effective December 1, 2017.

On March 9, 2017, a bankruptcy court in New York became the latest to weigh in on the developing circuit court split regarding whether modification of mortgages should be permitted under 11 U.S.C.

The United States District Court for the District of Massachusetts (the District Court) recently issued an opinion in the Paul Sagendorph bankruptcy case reversing the Bankruptcy Court's holding that a debtor can force a secured creditor to take title to its collateral in complete satisfaction of the creditor's secured claim.1 In reversing the decision of the Bankruptcy Court, the District Court held that the plain language of Sections 1322(b)(9) and 1325(a)(5)(C)2 does not empower a debtor to force a secured creditor to accept title to its collateral over that creditor's objection.3

On May 4, 2015, the Supreme Court of the United States issued an opinion regarding a Chapter 13 bankruptcy case from the United States Court of Appeals for the First Circuit (the “First Circuit”).1 The question on appeal was whether debtor Louis Bullard (“Bullard”) could immediately appeal the bankruptcy court’s order denying confirmation of his proposed Chapter 13 payment plan (the “Plan”).2 The Court held that denial of confirmation of a debtor’s plan is not a final, appealable order.3  

Case Background

It should be common knowledge that a secured creditor, having received proper notice in a Chapter 11 bankruptcy case, faces the risk that its lien will be extinguished if it fails to object to a reorganization plan that does not specifically preserve the lien. Apparently, however, not all secured lenders realize this risk, and some fall prey to a trap for the unwary in §1141(c) of the Bankruptcy Code by failing to protect their liens and place their collateral at risk.