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The CARES Act amends the Bankruptcy Code to a) make access to Chapter 11 relief under Small Business Debtor Reorganization ("SBDR") procedures more widely available; b) prevent sums paid under CARES from being included in "current monthly income" for abuse testing and Chapter 13 "projected disposable income" requirements; and c) allows Chapter 13 plans to be amended to take into account COVID related dislocations.
The SBDR procedures which became effective in February 2020, has a debt cap for non-contingent liquidated secured and unsecured debts owed to others than affiliates and insiders of the debtor.  CARES has increased the cap to $7,500,000 during the year following enactment.  The purpose of SBDR was to lessen the burdens on small debtors who often had difficulty in complying with the administrative provisions of Chapter 11 and had to incur substantial expense in complying with the plan and disclosure statement requirements of Chapter  11 to obtain confirmation of a plan.  SBDR still requires debtors to provide important information to creditors about the case and plan to obtain confirmation but allows one document to explain the proposed plan and facts about the debtor, its business and prospects and reduces the grounds on which creditors and others in interest can object to confirmation if certain standards for confirmation are met.  Raising the debt limit will allow substantially more entities to use and reap the benefits of SBDR procedures.  (To qualify under SBDR the debtor must be engaged in business and have more than 50% of its or his debts arise from business transactions.  Single asset real estate debtors are excluded.)
The CARES provisions excluding benefits/payments under the Act from disposable income and projected disposable income will have two effects.  First, with payments/benefits excluded it is likely that fewer consumer debtors will be presumed to have engaged in "abuse" as defined in section 707 and thus be subject to proceedings to dismiss the case unless converted to Chapter 13.  Fewer debtors are likely to meet the "abuse" test of paying 25% or $10,000 over the life of a payment plan.  Thus, more debtors will be able to file Chapter 7 cases, obtain a discharge and a fresh start in life.  The exclusion of CARES payments and benefits from a Chapter 13 disposable income test means that the amounts Congress meant to flow through to individuals will be excluded from the duty to pay disposable income into the plan and will thus stay with the intended impacted consumer recipient.
The CARES provision for amendments to confirmed Chapter 13 plan allows a debtor whose plan performance is impacted by COVID dislocations to preserve the benefits of their confirmed plans for both themselves and their creditors by stretching out the payment term for an additional two years after the first payment was due under the plan.  The amendment may also involve a reduction of the total paid under the plan, but the plan must still comply with the vast majority of the provisions of the Code governing plan and confirmation requirements.  One important example is a plan filed to save the debtor's home from foreclosure in which all of the arrears must be paid.  A COVID-impacted debtor who has less disposable income may need more than the available maximum five years to pay everything required to be paid to the mortgagee.  Vehicles also may be saved.  Plans geared to paying tax debts that otherwise would incur hefty interest and penalties could also be saved.
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