COVID-19 Bankruptcy Relief Extension Act Extends Higher Debt Limit for Small Business Bankruptcies

04.08.2021

In a recent Hirschler Bankruptcy Alert, we noted that certain protections enacted by Congress as part of the Coronavirus Aid, Relief and Economic Security Act of 2020 (“CARES Act”) to assist small businesses and individual debtors in bankruptcy were set to expire on March 27, 2021. One week prior to the expiration of these provisions, President Biden signed into law the “COVID-19 Bankruptcy Relief Extension Act” which will extend many of these protections an additional year, through March 27, 2022. 

For small businesses, one of the key protections of the CARES Act is the increased debt ceiling for small business cases under the Small Business Reorganization Act of 2019 (SBRA). The SBRA created a streamlined process for small businesses to reorganize which was less complicated and expensive than a traditional reorganization under chapter 11 of the Bankruptcy Code. While the SBRA has many benefits for small businesses, as originally enacted it was available only to businesses with less than $2,725,625 in debt.

The CARES Act increased the debt limit under the SBRA to $7,500,000, initially through March 27, 2021. The higher debt limit has now been extended through March 27, 2022. This nearly three-fold increase means that many thousands of additional businesses can take advantage of SBRA’s benefits, which include: 

• Easier Plan Confirmation - An SBRA debtor can confirm its plan even if no class of creditors has voted to accept the plan, so long as the plan is fair and equitable and does not discriminate unfairly.
• No U.S. Trustee’s Fees - The SBRA does away with the requirement that a debtor pay a quarterly fee to the Office of the U.S. Trustee.
• No Committees – The SBRA generally does away with committees, but instead mandates the appointment of a more neutral trustee.

While there is hope on the horizon with the roll-out of COVID-19 vaccinations, it will still be a long haul before the economy returns to normal. If your business has been negatively impacted by COVID-19, a filing under the SBRA may help “right the ship” and get your business back on firm footing to meet the challenges ahead. 

If you would like to learn more about SBRA and how it can help your business – or if you need help navigating a bankruptcy filed by your tenant, vendor, or borrower – Hirschler’s bankruptcy, restructuring, and creditors’ rights team is here to help.