The CARES Act and Bankruptcy

CARES Act Bankruptcy

The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted on March 27, 2020 to help consumers and businesses weather the economic storm created by the COVID-19 pandemic.

As part of its passage, Congress included several important features related to both consumer and business bankruptcy.

The provisions related to consumer bankruptcy under Chapter 7 and Chapter 13 of the bankruptcy code include:

Exclusion of any Covid-19-related benefits or enhanced unemployment benefits from the income analysis related to the “means test.” This means that any stimulus checks or enhanced unemployment benefits will not be part of a person or couple’s income when making a determination as to whether they qualify for a complete liquidation. The bankruptcy court looks at a Chapter 7 filer’s income for the six months prior to the Petition requesting protection. These enhanced unemployment benefits and stimulus payments could prevent some people from obtaining a complete liquidation of debt and ultimately a discharge if included. Congress accounted for this and made sure that these payments are not included as income.

The exclusion of Covid-19-related benefits as described above also relates to Chapter 13. The enhanced unemployment benefits and stimulus payments are not included as disposable income and will not be included in any filer’s repayment plan approved by the Court. Additionally, under normal circumstances or those circumstances existing before the pandemic, Chapter 13 filers typically had a 3- or 5-year window for repayment. Under the CARES Act if a person was already working under a confirmed Chapter 13 repayment plan there is a potential to extend that plan into 7-year plan. People in this situation may also wish to consider converting a Chapter 13 plan into a Chapter 7 liquidation and discharge. Every person or couple’s situation is different so careful analysis is needed to make an appropriate determination

The CARES Act also has important provisions related to small business bankruptcy under Chapter 11 of the code.

In February of 2020 the Small Business Reorganization Act (“SBRA”) took effect. That law had nothing to do with COVID-19 and was passed by Congress in August of 2019. It created a separate sub-chapter in Chapter 11 of the Bankruptcy Code in an effort to streamline the restructuring process for small businesses seeking protection under the Code. It also made it more difficult for creditors to contest small business restructuring. The SBRA also contains cost-savings measures and makes it easier for small businesses to survive bankruptcy and retain control over their operations. Before the pandemic the debt limits to the SBRA were $2,725,626.00. The CARES Act moved the debt limit under the SBRA up to $7,500,000.00 for combined secured and unsecured obligations (excluding debt owed to insiders or affiliates). The SBRA also allows in certain circumstances to “cram down” lenders (reduce the amount owed) on the value of residential collateral used for business loans.

All bankruptcy-related provisions in the CARES Act are available for one year from the date it was enacted. Those provisions expire on March 27, 2021. If you are considering bankruptcy, either personally or for your business, you should consult an attorney at Bona Fide Bankruptcy.

If you, or someone you know, is facing financial uncertainty or if you just have questions related to the financial repercussions of the pandemic, the CARES Act, the eviction moratorium, or how business debt restricting has changed since COVID-19 came to impact us all, please do not hesitate to reach out for a no-cost, confidential consultation.

Bona Fide Bankruptcy Attorneys, PLLC, is here to advocate on your behalf during this tumultuous time. We are licensed in Arizona and practice law in Tempe, Mesa, Chandler, Gilbert, Scottsdale, and Phoenix.

Call us at (800) 975-6441 to schedule your FREE Consultation, or visit our website at

*Our firm practices bankruptcy law and is considered a debt relief agency by federal law. We help people file for bankruptcy relief under the Bankruptcy Code.

**Disclaimer: This article provides general information and should not be taken as legal advice. Answers to questions or comments do not form an attorney-client relationship. Christopher J Curran is an attorney licensed in Arizona. This article is an advertisement.

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