Does the CARES Act Impact Bankruptcies During or After COVID-19?

Bankruptcy Lawyer Bryan W. Stone answers the question: “What is a bankruptcy discharge ?”


In March 2020, President Donald Trump signed into law the historic CARES Act in response to the COVID-19 pandemic. CARES stands for the Coronavirus Aid, Relief, and Economic Security. The Act covers unemployment and provides relief to American workers and small businesses impacted by the pandemic and government-ordered shutdowns.

Check-payroll-PPP-Loans-Charlotte-Monroe-Mooresville-Bankruptcy-Lawyer-208x300If you are considering filing for bankruptcy, you should consider how the Act impacts Chapter 7 and Chapter 13 bankruptcy filings. We will discuss how the CARES Act affects your ongoing bankruptcy case and whether you are eligible for relief if you filed for bankruptcy.

Previously, we discussed how the coronavirus pandemic could affect bankruptcy cases.


How the CARES Act Affects Bankruptcy Filings

Some sections of the CARES Act address debtors and those with a pending bankruptcy case. One of them expressly excludes federal payments from classification as income.

Debtors who filed for bankruptcy or are paying into their bankruptcy case are required to report all of their income. The CARES Act does not classify any payments received as part of the federal emergency as income. Thus, stimulus checks and unemployment increases are not treated as income and will not affect your bankruptcy case.

Also, since many Americans’ payment abilities have been significantly affected by the coronavirus crisis, the government allows debtors who are already in a bankruptcy plan to make COVID-19-related modifications. Also, the government extended current bankruptcy filings. These changes will remain in effect until March 27, 2021.

The Act allows debtors to modify a confirmed plan if they experience a “material financial hardship” due to the COVID-19 pandemic.


Paycheck Protection Program (PPP) and Bankruptcy

The CARES Act also established the Paycheck Protection Program (PPP), which is essentially a loan that provides a direct incentive for small businesses. While the PPP has been a godsend to businesses that barely survived the pandemic, the Small Business Administration has sought to limit access to the program by bankrupt borrowers.

The CARES Act itself does not prohibit debtors in bankruptcy from receiving PPP funds. However, as seen on the SBA’s website, Question 1 on the PPP Borrower Application Form asks whether the applicant is currently involved in any bankruptcy. If the answer is “yes,” the application form warns that the “loan will not be approved.”

In its “PPP Interim Final Rule,” released by the SBA on April 24, the agency confirmed that applicants currently involved in bankruptcy cases are not eligible to receive PPP funds. However, what happens if a PPP applicant files for bankruptcy after receiving PPP funds? So far, the CARES Act and the SBA have been silent on this issue.

The SBA would likely prevent the debtor from using PPP funds after it finds out about the applicant’s bankruptcy filing. Consult with a Charlotte bankruptcy attorney to estimate the impact of the CARES Act or the PPP program on your filing. Our lawyers at Arnold & Smith, PLLC, will help you navigate a bankruptcy case during these unprecedented times and keep up-to-date on the latest legal changes. Contact our Charlotte-based law firm for a case review. Call our lawyers at Arnold & Smith, PLLC, at (704) 370-2828 to evaluate your options or fill out our contact form. Now taking cases throughout North Carolina with offices in Uptown Charlotte, Mooresville and Monroe.





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