The impact of COVID-19 is being felt at all levels of the economy and will work its way through bankruptcy courts for years to come. In these early days, many creditors who are themselves suffering are providing assistance to troubled companies. Suppliers and commercial landlords are agreeing to various forms of relief, including modified credit terms and rent relief to allow customers to bridge this period of unprecedented disruption. While these corporate good Samaritans are providing immediate aid they may be subjecting themselves to the risk of future losses.

On March 27, 2020, President Donald Trump signed into law the third major coronavirus-related legislation in the last several weeks – the Coronavirus Aid, Relief, and Economic Security (CARES) Act – in response to the pandemic and resulting economic crisis. The CARES Act includes substantial federal spending and loan commitments that will benefit individuals and businesses.

Guest Author: Karlene A. Archer of Karlene A. Archer Law P.L.L.C.

Consumers that have pending Chapter 13 bankruptcy cases undoubtedly suffered from financial hardship prior to the COVID-19 pandemic. For many of those consumers, the pandemic may have exacerbated that hardship. The CARES Act’s mortgage forbearance provisions allow some breathing room for consumers that anticipate a temporary inability to pay their mortgage. These provisions also apply to consumers in bankruptcy and in that sphere present unique difficulties.

The economic fallout from the COVID-19 pandemic will leave in its wake a significant increase in commercial chapter 11 filings. Many of these cases will feature extensive litigation involving breach of contract claims, business interruption insurance disputes, and common law causes of action based on novel interpretations of long-standing legal doctrines such as force majeure.

Last week, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law, implementing broad relief for individuals and businesses affected by COVID-19. One of the sections of the CARES Act receiving less attention is a temporary amendment to the Bankruptcy Code to provide streamlined reorganization procedures for businesses with debt of less than $7.5 million.

On Friday March 27, 2020, President Trump signed into law the third major piece of coronavirus-related legislation in the last several weeks – the Coronavirus Aid, Relief, and Economic Security Act (CARES). The new law contains several amendments to the Bankruptcy Code.

Bankruptcy & Creditors’ Rights Alert

Small businesses often struggle to reorganize in bankruptcy. To address this issue, Congress passed the Small Business Reorganization Act of 2019. The act took effect in February 2020 and makes small business bankruptcies faster and less expensive. At the time of enactment, the act only applied to business debtors with secured and unsecured debts less than $2,725,625.

The brick-and-mortar retail industry has been in a state of flux since online retailers such as Amazon started business in the mid-‘90s. Recent years have been particularly difficult for retailers: in 2018, retailers represented 5 of the 10 largest Chapter 11 bankruptcies. The pace of retail bankruptcies showed no signs of slowing in 2019, with retailers such as Payless Holding LLC, Forever 21, Gymboree, Z Gallerie, and many others all filing Chapter 11 petitions.

As the nation hunkers down to combat the novel coronavirus (COVID-19), bankruptcy courts throughout the country have moved quickly to implement procedures to preserve access to the courts while limiting in-person interaction during the crisis. Each court’s specific COVID-19 procedures are different, but they largely prohibit in-person hearings, recognize the need for flexibility and adjournments for non-emergent matters whenever possible, and encourage the creative use of technology to allow as many matters to go forward as scheduled, including evidentiary hearings.

Social distancing. Elbow bumps. Flatten the curve. These are the new phrases and behaviors we have learned to avoid exposure to the novel coronavirus (COVID-19). This epic struggle forces us to reexamine and reevaluate our daily habits, lifestyles and customs as we work collectively to minimize the harm to our families, friends and neighbors throughout the United States.