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COVID Relief Bill Had Some Important Business Bankruptcy Changes

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Do you remember the COVID-19 relief bill that provided relief payments to Americans? Well that bill actually had a lot of amendments that were relevant to bankruptcy laws, and altered many longstanding bankruptcy laws. Many of the laws that were changed relate to Chapter 11 bankruptcies, and business bankruptcies, but others may find some relief in these changes as well.

Here are some of the changes or alterations to bankruptcy laws that the COVID bill made.

Assumption of Leases

With commercial leases, after a bankruptcy is filed, a debtor can agree to assume the lease, or reject it without financial penalty, so long as the election is made within 120 days.

The COVID bill has extended this period, giving debtors up to 210 days to make that decision. Because the law allows a debtor, with court permission, to get an additional 90 days, the total number of days to accept or reject a commercial lease from the date of filing the bankruptcy is 300 days.

This change ends in December 2022, but can go longer than this deadline, so long as a Chapter 11 case was filed before that date.

Time to Make Rent Payments

In Small Business Chapter 11 bankruptcies, a debtor now has more time to make rent payments on commercial leases.

The law used to be that 60 days after filing, a debtor would have to start making the regular rent payments again. But now, this time period can be extended by 60 days, if the court finds that there is a financial hardship caused by COVID. This change will also expire in December 2022.

The claim for the unpaid rent will be treated as priority claim in Chapter 11, giving the landlord some assurance of being paid back.

Recovery of Preferential Payments

In all forms of bankruptcy, a trustee can recover any payments the debtor makes to creditors that is considered out of the ordinary, if the payment was made within 90 days of filing the bankruptcy. This law exists to avoid a debtor paying off one creditor in full, and then leaving other creditors with nothing when the bankruptcy is filed.

If a payment is made within that 90 day period, the bankruptcy trustee can deny the discharge, allege the filing was fraudulent, or sue whatever creditor received the money in a clawback suit.

But under the amendment, if a business or person agreed with a commercial landlord to make any payments within that 90 day period, the landlord can keep the money, and the payment won’t be considered fraudulent. The debtor and the landlord must have entered into an agreement before March 3, 2020, to qualify.

This change was made to encourage landlords and tenants of commercial property to come to amicable solutions in rent disputes, given the tough economic climate caused by COVID.

These are difficult times for everyone. We can help. Call the West Palm Beach bankruptcy lawyers at Kelley, Fulton & Kaplan at 561-264-6850.

Resource:

natlawreview.com/article/covid-19-bankruptcy-code-amendments-consolidated-appropriation-act-and-covid-19

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