March 5, 2021Client Alert

New Legislation May Extend Bankruptcy Relief Provisions of CARES Act

On February 25, 2021, U.S. Senators Dick Durbin and Chuck Grassley introduced the COVID-19 Bankruptcy Relief Extension Act to extend certain bankruptcy relief provisions enacted as part of the March 2020 CARES Act and December 2020 omnibus appropriations bill.

This bipartisan legislation would extend for an additional year significant bankruptcy relief provisions under the CARES Act that are set to expire on March 27, 2021. Notably, the bill aims to extend the March 27th sunset of the expanded $7.5 million debt limit to qualify as a small business debtor under Subchapter V. The CARES Act has allowed more small businesses to take advantage of the streamlined Chapter 11 bankruptcy proceedings by increasing the debt limit for Subchapter V eligibility from $2.5 million to $7.5 million. Subchapter V cases are gaining more popularity with practitioners and bankruptcy courts around the country due to lower costs and quicker reorganizations for struggling businesses compared to traditional Chapter 11s.

The COVID-19 Bankruptcy Relief Extension Act would also extend until March 27, 2022, several other bankruptcy relief provisions which would otherwise end in December 2021. The bill would continue to prevent utility service providers from terminating utility services to individual debtors and families who cannot furnish a security deposit to continue utility services during their bankruptcy cases. Federal COVID-19 relief payments to individuals would continue to be exempt from being treated as property of the bankruptcy estate.

Unless and until the extension takes place, many current benefits for small businesses will lapse at the end of this month.

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