Did The Consolidated Appropriations Act Amend The Bankruptcy Code To Permit PPP Loans For Certain Debtors?

The Consolidated Appropriations Act is a comprehensive new law passed on December 27^th, 2020 with certain provisions affecting bankruptcy law. The CARES Act, which was passed in March of 2020 of did not include debtors in Chapter 11 as parties who are eligible for what are known as Payment Protection Program (PPP) loans. The rationale was that those entities were already in some type of an insolvency proceeding and the likelihood of a default is higher. Bankruptcy practitioners were very disturbed about this exclusion because they believe that Debtor entities are most deserving of relief and prime candidates for the PPP loans. After the CARES Act, case law was split. The Consolidated Appropriations Act now permits debtors to apply for PPP loans, but there’s one administrative requirement to be satisfied: the SBA administrator must send a letter to the director of the Executive Office for United States Trustees allowing the PPP loans in bankruptcy.

Assuming the SBA administrator acquiesces to the PPP loans in bankruptcy, the loans will be available on a limited basis. PPP loans available in cases filed after the date of the SBA notice to the Office of United States Trustee. Only debtors who are authorized to operate their business as debtors in possession and not Chapter 11 operating Trustees can apply. With respect to debtors already in bankruptcy, there are some cases in certain jurisdiction that permit them, but the Consolidated Appropriations Act will apply to cases filed in the future.

Is It True The Consolidated Appropriations Act Will Allow A Chapter 13 Discharge Even If Certain Payment Plans Have Not Been Made?

Included in the Consolidated Appropriations Act is a section called 1328(i), which provides a Bankruptcy Code discretion to grant a discharge to a Chapter 13 debtor when mortgage payment defaults have occurred after March 13, 2020. Those defaults, however, must be limited to three months of payments and caused by material, COVID-19-related financial hardship. Secondarily, 1328(i) provides the bankruptcy court discretion to grant a discharge to a debtor whose confirmed plan provides for curing defaults under residential mortgage with the qualifying loan that has a mortgage or forbearance agreement approved by the bankruptcy court. This provision does not affect the mortgage lien itself, but a debtor would apply for a discharge of other unsecured debts, even though the debtor may be delinquent on mortgage payments due under the plan.

The commentators who have addressed this issue in recent seminars are puzzled by this new section of the Bankruptcy Code. It appears that more extensive relief than necessary may be granted to debtors in the midst of a Chapter 13 case. The plan payment obligations remain, but debtors may now apply for a discharge at an earlier date. It is expected that the bankruptcy court’s discretion applying this new 1328(i) will be a controversial issue when case law interpreting the change evolves.

What Does The Consolidated Appropriation Act Say About Discrimination Because Of Bankruptcy Filing?

Bankruptcy Section 525 already provides for protection of Debtors against unfair discrimination. Essentially, the CAA adds a provision that clarifies several CARES Act changes enacted to assist debtors who request mortgage foreclosure, forbearances, or mortgage moratoriums. The CAA includes provisions to prevent discrimination against debtors simply because they have sought mortgage relief assistance. Even though claims under 525 of the Bankruptcy Code are rare, the purpose of the CAA amendment is to ensure that homeowners who have filed a case are eligible for mortgage forbearance or other COVID-19 mortgage assistance. In addition, renters are eligible for COVID-19 eviction relief. This section of the Bankruptcy Code amendment to 525 will terminate one year after enactment in December of 2021.

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