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Will Congress Broaden Bankruptcy Protections for Consumers and Businesses?


The ongoing coronavirus pandemic has dramatically changed life for all people in Florida. Not only have many businesses been shuttered, but people have either lost their jobs or been furloughed. Across the nation, there has been an unprecedented economic contraction, with millions of people now unemployed.

Bankruptcy has long served as a safety valve for overburdened consumers and businesses. Many consumers can choose to either wipe out unsecured debts using a Chapter 7 bankruptcy or sign on for a payment plan that lets them slowly repay debts over the course of several years in Chapter 13. Businesses have also been able to continue to do business with a Chapter 11 while reorganizing their debt loads.

Now, a group of bankruptcy scholars want Congress to change the bankruptcy code to respond to the current crisis. Will Congress listen?

Sensible Proposals to Help Distressed Consumers & Businesses

In a letter to Congress, the National Bankruptcy Conference has emphasized the dramatic nature of this pandemic. They have also asked that Congress make changes to the bankruptcy code to rise to the occasion by giving individuals and businesses more relief from crippling debts. They make several proposals that would immediately help the South Florida community:

Expand Chapter 11 for small businesses. The Small Business Reorganization Act passed in 2019 made it easier for small businesses to reorganize debts in Chapter 11. However, a business can only have $2,725,625 in liquidated debts to qualify. The conference recommends that Congress increase the debt threshold to at least $7,500,000. This means more business could qualify for reorganization and would not have to liquidate using a Chapter 7.

Change Chapter 13 to benefit consumers. The conference wants to help those who file for Chapter 13 protection with the following:

  • Exclude as disposable income any relief payments from the government, including the stimulus check of $1,200 that most people should receive.
  • Enact a Chapter 13 payment moratorium if a debtor is struggling financially due to COVID-19.
  • Allow modification of currently existing repayment plans so that they can continue with their Chapter 13 bankruptcy.
  • Allow mortgage modification within Chapter 13, which allows debtors to stay in their homes.

These are all excellent suggestions, and we hope Congress is listening.

Additional protections to consumers. The Conference also recommends that Congress stay civil actions, evictions, foreclosures, administrative actions, and repossessions for at least 90 days. This step would give consumers some breathing room.

Will Congress Change the Bankruptcy Code?

Our elected representatives have a lot on their plates right now, and we are not sure how focused they are on altering the bankruptcy code. If the current crisis deepens, then Congress might take a second look. They could also consider changes related to student loans, which are an enormous burden on many consumers, particularly younger ones.

At Nowack & Olson, our Plantation bankruptcy lawyers stay on the cutting edge of changes to the law. We will use all tools to benefit our clients as they try to dig out from under debts. If you would like to discuss bankruptcy, please call us today to schedule your free consultation.


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