New Bankruptcy Amendments
On December 27, 2020, the Consolidated Appropriation Act (“CAA”) was signed and became law. We have previously described the impact of the CAA regarding the possibility of providing PPP loans to bankruptcy Debtors . The new law also amended the Federal Bankruptcy Code in several ways and provided for additional benefits that will impact Debtors in bankruptcy. The following is a brief summary of some of the changes to the Bankruptcy Code created by the CAA.
Chapter 13 discharge – Payments Not Made
The CAA amends section 1328 of the Bankruptcy Code and provides a bankruptcy court the ability to grant a discharge in a chapter 13 bankruptcy even if the debtor defaulted on or after March 13, 2020, in not more than three monthly payments on a residential mortgage obligation, and if it was due in part to a material Covid 19 hardship. It also allows bankruptcy courts to provide a discharge to a debtor who was paying mortgage arrears in a confirmed plan, if the debtor has entered into a certain loan modification or forbearance with the mortgage lender.
No Discrimination Because of Bankruptcy
The CAA amends section 525 of the Bankruptcy Code so that nobody may be denied relief under the CARES Act solely because they are a debtor in a Bankruptcy case. The specific CARES Act relief that may not be denied are moratoriums on foreclosure, the right to request forbearance on certain mortgages, and temporary eviction moratorium.
CARES Act Forbearance Claims in Chapter 13 Bankruptcy
Previously, the CARES Act allowed certain federally backed mortgages to qualify for payment forbearance if tied to Covid-19 hardships. In many cases, at the end of the forbearance, all of the deferred payments become due in a lump sum. The CAA provides that if this occurs to a chapter 13 Debtor, a proof of claim may be filed for deferred payments due. This is true even if the claims bar deadline has passed. It also provides that Debtors to amend their plan to provide for the deferred payments.
Many of these provisions have sunset provisions and may only be available for a specified period of time. Following blog entries will address CAA items applicable to Subchapter V Small Business Chapter 11 Bankruptcies.
