COVID-19 Update: Temporary Bankruptcy Code Amendments

Congress recently enacted the Consolidated Appropriation Act of 2021 (the “CAA”), which contains multiple amendments to the U.S. Bankruptcy Code. Below is an overview of the bankruptcy-related amendments in the CAA. If you have any questions, or would like more information, please contact Eaton Peabody’s Bankruptcy & Creditor’s Rights Practice Group Chair, Shawn Doil at

1. Paycheck Protection Program Loans to Certain Debtors in Bankruptcy.

The CAA includes a provision allowing certain debtors in bankruptcy to receive PPP loans. The provision is dependent on the SBA Administrator’s prior approval, in effect delegating authority to the SBA to decide whether to allow such loans. Courts would also need to hold a hearing on a motion to obtain a PPP loan within 7 days of filing. Debt incurred pursuant to a PPP loan, to the extent not forgiven, would be paid as an administrative claim.

If the SBA approves, loans will be available: (a) in cases filed after the date the SBA sends the approval letter, and (b) only to Subchapter V small business debtors, Chapter 12 family farmer debtors, and self-employed Chapter 13 debtors. This amendment sunsets on December 27, 2022.

2. 11 U.S.C. § 541 – Recovery Rebates Not Property of the Estate.

Recovery rebates, or Economic Impact Payments, issued to debtors are not property of the estate under the CAA’s amendment to § 541(b). This amendment sunsets on December 27, 2021.

3. 11 U.S.C. § 1328 – Discharge for Debtors Experiencing COVID-19-Related Hardships.

The CAA amends § 1328 by granting bankruptcy judges discretion to grant discharges to Chapter 13 debtors who:

(a) have defaulted under a residential mortgage;
(b) on or after March 13, 2020;
(c) on not more than three 3 monthly payments; and
(d) the default(s) were due to a COVID-19-related financial hardship.

Courts may also grant discharges for debtors with confirmed Plans that cure defaults on residential mortgages if they have entered into a qualifying loan modification or forbearance agreement. This does not discharge the mortgage, but can discharge other debts under the Plan. This amendment sunsets on December 27, 2021.

4. 11 U.S.C. § 525 – Discrimination Amendment.

The CAA adds language to § 525 to confirm that no person may be denied relief under the CARES Act’s foreclosure moratorium, eviction moratorium, or mortgage payment forbearance provisions solely because the person is or was a debtor in bankruptcy. This amendment sunsets on December 27, 2021.

5. CARES Act Forbearance Claims, Modification of Chapter 13 Plans.

A provision in the CAA allows servicers of debtors who have received a CARES Act forbearance to file a proof of claim, even if the claims deadline has passed, for the deferred payments, rather than requiring the debtor to make a lump-sum payment.

The provision also allows debtors to modify confirmed Chapter 13 plans to address the deferred payments. A bankruptcy judge, U.S. Trustee, or Chapter 13 trustee may also move for the modification if the debtor does not. These amendments sunset on December 27, 2021.

6. 11 U.S.C. § 365(d) – Extended Time to Perform Under Unexpired Lease in Subchapter V.

The CAA extends the deadline under § 365(d)(3) for up to 120 days for a debtor under subchapter V of Chapter 11 to perform under an unexpired non-residential real property lease if the debtor is experiencing or has experienced a financial hardship due, directly or indirectly, to COVID-19. Unpaid deferred obligations are administrative expenses upon confirmation, but may be spread over time under the Plan. This amendment sunsets on December 27, 2022.

7. 11 U.S.C. § 365(d) – Deadline to Assume Unexpired Leases Extended 90 days.

The deadline under § 365(d) to assume or reject an unexpired non-residential real property lease is extended to 210 days after the order for relief, from the previous 180 days. The extension is applicable to all chapters. This amendment sunsets on December 27, 2022.

8. 11 U.S.C. § 547 – Prohibition of Preference Transfers.

The CAA amends § 547 to prohibit avoiding preference payments for “covered rental arrearages” and “covered supplier arrearages.” To qualify for the exemption:

(a) The debtor and the recipient of the transfer must have entered into a lease or executory contract prepetition;
(b) They must have amended the lease or contract after March 13, 2020; and
(c) The amendment must have deferred or postponed payments otherwise due.

This exemption does not apply to payment of fees, penalties, or interest imposed after the amendment (i.e. after March 13, 2020). This amendment sunsets on December 27, 2022.

9. 11 U.S.C. § 366 – Prohibition on Discontinuing Utilities.

Finally, the CAA amends § 366 to prohibit utility companies from discontinuing services to an individual debtor so long as the debtor pays for services rendered in the 21 days post-petition and continues to make all other post-petition utility payments, even without adequate assurance of payment. This amendment sunsets on December 27, 2021.