In this article...
As of December 2020, the Consolidated Appropriations Act of 2021 (the “Act”) was enacted, which temporarily modified several sections of the Bankruptcy Code. In this article we discuss these recent changes to bankruptcy law including:
- Changes to Obtaining Credit 2021
- Changes to the Deadline for Performance of Obligations 2021
- Changes to Non-Residential Leases 2021
- Changes to Utility Service 2021
- Changes to Discriminatory Treatment Protections 2021
- Changes to Property of the Estate 2021
- Changes to Bankruptcy Preferences 2021
Bankruptcy is a legal process designed to help individuals or corporations restructure their debts. There are different types of bankruptcy proceedings, the most common types occurring under Chapter 7 and Chapter 13 of the Bankruptcy Code. This is a big decision and before deciding to file for bankruptcy, you should consider all of your options. Not all debts may be “discharged” through bankruptcy, and therefore, this may not fix all of your debt issues. For more information on what debts may not be discharged in Illinois through bankruptcy, click here.
Should you decide that bankruptcy is your best option, it is very important that you avoid several actions in the months leading up to your filing to avoid denial or fraud.
Changes to Obtaining Credit 2021
Section 364 of the Bankruptcy Code deals with financing for businesses. The most recent amendment authorized another round of Paycheck Protection Program (PPP) loans, and provided that “small business debtors” are now eligible to receive PPP funds. In the past, the Small Business Association (SBA) uniformly denied small business debtor applications for PPP loans, which led to several legal challenges and ultimately inconsistent bankruptcy court decisions regarding their eligibility. This amendment now allows certain debtors to receive PPP funds if they are found to be otherwise eligible for them.
For more information on the Paycheck Protection Program and eligibility, check out our article Paycheck Protection Program (PPP) and The Second Draw.
Changes to the Deadline for Performance of Obligations 2021
The recent amendment to Section 365(d)(3) allows, at the bankruptcy court’s discretion, small business debtors experiencing pandemic-related financial distress to take an additional 60 days (on top of the original 60-day grace period) to make payments on unexpired leases for non-residential real property following their bankruptcy filing date. This essentially allows debtors to defer their non-residential rent for four (4) months, which increases their short-term cash liquidity at the start of their bankruptcy case. This amendment is set to sunset in December of 2022.
Changes to Non-Residential Leases 2021
The Act amends Section 365(d)(4) of the Bankruptcy Code to extend the deadline for trustees or debtors-in-possession to assume or reject non-residential leases for real property by an additional 90 days (for a maximum total of 300 days) from the bankruptcy filing date. This amendment is also set to sunset in December of 2022, but will apply retroactively to any relevant cases filed before that date.
Changes to Utility Service 2021
The recent amendment to Section 366 of the Bankruptcy Code also offers assistance to debtors. This amendment limits utility companies’ ability to terminate services to its debtors. Prior to this amendment, utilities were allowed to terminate services if they were not issued payment or adequate assurance of payment within twenty (20) days of the date of the order for relief. Now, as long as the debtor pays the utility company for services furnished within the 20-day post-bankruptcy filing period and continues to make other post-petition payments, the utility cannot refuse or terminate services for prior debts. This amendment is set to sunset in December of 2021.
Changes to Discriminatory Treatment Protections 2021
The recent amendment to Section 525 of the Bankruptcy Code provides for various pandemic-related legal protections for debtors. It offers general protection from discriminatory practices, such as denial of pandemic relief payments based on their current or prior status as a debtor under several CARES Act provisions.
Changes to Property of the Estate 2021
The recent amendment to Section 541 of the Bankruptcy Code provides that pandemic relief payments will not be considered the property of the debtor’s estate as far as creditors are concerned. This is set to continue through until December of 2021.
Changes to Bankruptcy Preferences 2021
Section 547 of the Bankruptcy Code provides landlords and suppliers with an additional potential challenge to actions that are brought to attempt to recoup any payments made within 90 days of filing for bankruptcy.
Generally, Section 547 allowed debtors or bankruptcy trustees to “claw back” payments made within 90 days of filing for bankruptcy unless the creditor could establish a statutory defense. The recent amendment added a subsection that prohibits a trustee or debtor-in-possession from avoiding and recovering certain payments as a preferential transfer. This amendment seeks to ensure that landlords and suppliers are not penalized for accepted deferred payments, and also encourages them to explore financial accommodations with their debtors going forward. This amendment is set to sunset as of December of 2022.
Many of the changes that were made to the practice of bankruptcy law in Illinois were made to respond to the pandemic and the inability to hold in-court proceedings. However, the Northern District of Illinois is considering whether to make some of these changes permanent. There is a survey link available on the Northern District if Illinois’ website.
For more information on what options are available for consumers this year please see our article entitled Will Personal Bankruptcy Cases In Illinois See A Significant Increase In 2021?.