The Consolidated Appropriations Act of 2021

March 1 2021 | Committees

The Consolidated Appropriations Act of 2021, which was enacted on December 27, 2020, included several amendments to the Bankruptcy Code. Here is a summary of the most important amendments:

PPP Loans to Debtors

Small business debtors (under Subchapter V of Chapter 11), Chapter 12 family farmer debtors, and self-employed Chapter 13 debtors may apply for a PPP loan. Bankruptcy Court approval is required.  PPP loans, if not forgiven, will be treated as a “super priority” administrative expense in the case. This amendment sunsets 1 year after enactment.  [See amendment to Bankruptcy Code §364]

The Act states that this provision takes effect only when the SBA submits a written determination to the Director of the Executive Office for the United States Trustees that any bankruptcy debtor or trustee that is authorized to operate the business of the debtor “would be eligible for a loan under paragraphs (36) and (37) of Section 7(a) of the Small Business Act….” Thus far, the SBA has not issued this determination.  In fact, the SBA issued an interim in early January of this year stating that parties in bankruptcy were ineligible. Even though the CARES Act did not exclude debtors in bankruptcy, the SBA did so in its rules (which led to conflicting court decisions as to whether the SBA exceeded its authority by excluding bankrupt borrowers). The recently released SBA interim rule is the same as the prior SBA rule on this issue. 

Chapter 13 Discharge Despite Missing Payments

Chapter 13 debtors under confirmed plans may still be granted a discharge despite missing up to 3 monthly payments due on a residential mortgage on or after March 13, 2020, if caused by a material financial hardship due, directly, or indirectly, to the COVID–19 pandemic. The missing mortgage payments would still be owed to the lender. This amendment sunsets 1 year after enactment. [See amendment to Bankruptcy Code §1328]

Extended Time to Perform Under Commercial Leases

Small business debtors experiencing, or having previously experienced, a material financial hardship due to the COVID-19 pandemic may be provided 60 additional days (up to 120 days total) to perform all post-petition obligations arising under the terms of an unexpired non-residential real property lease. Any deferred obligations that are unpaid at confirmation constitute administrative expenses, but the debtor may spread the payments out over time under the confirmed plan. In addition, Subchapter V Debtors are provided an additional 90 days (up to 300 days total) to assume or reject unexpired non-residential real property leases. These amendments sunset 2 years after enactment. [See amendments to Bankruptcy Code §§365(d)(3) and 365(d)(4)]

Deferred Payments Not Avoidable as Preferences

Payments to commercial landlords and suppliers may not be avoided as a preference if made pursuant to a payment arrangement reached on or after March 13, 2020, and only to the extent such payments do not include any fees, penalties, or interest in an amount greater than the fees, penalties, or interest the debtor would have owed the landlord or supplier had it not entered into the payment arrangement. This amendment sunsets 2 years after enactment. [See amendment to Bankruptcy Code §547]

Relief from Utility Requirements

Small business debtors are not required to post a deposit or other assurance of payment to prevent termination of utility services during the bankruptcy case. This amendment sunsets 1 year after enactment. [See amendments to Bankruptcy Code §366]

Certain Relief Payments Not Property of the Estate

Certain federal coronavirus relief payments (“recovery rebates made under section 6428 of the Internal Revenue Code of 1986”) are not treated as the property of the estate. This amendment sunsets 1 year after enactment. [See amendment to Bankruptcy Code §541(b) and new subsection (11)]

Increase in Subchapter V Debt Ceiling Not Yet Extended

The Consolidated Appropriations Act of 2021 did not extend or enlarge the debt ceiling under Subchapter V.  When the Small Business Reorganization Act of 2019 became effective in February 2020, Subchapter V was made available to small business debtors with debts of less than $2,725,625. The CARES Act, which became effective on March 27, 2020, raised the debt ceiling under Subchapter V to $7.5 million until March 27, 2021. Congress has not yet extended the sunset on the increased debt limit under Subchapter V.  

Check out NOBA's upcoming CLE which will cover this topic on Wednesday, March 10, 2020.


David F. Waguespack
Carver Darden Koretzky Tessier Finn Blossman & Areaux LLC
Bankruptcy & Debtor-Creditor Rights Committee Co-Chair


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