Legislation allowing businesses going through bankruptcy to keep their doors open while negotiating with creditors has been signed into law by President Biden.
Biden signed H.R. 1651, the COVID–19 Bankruptcy Relief Extension Act of 2021, which was introduced by Sixth District Congressman Ben Cline and House Judiciary Committee Chairman Jerry Nadler (NY-10).
This action follows the 2019 passage and signing of Cline’s Small Business Reorganization Act, which simplified the process for entrepreneurs to use bankruptcy as a means of reorganization. Under the 2019 bill, businesses with less than $2.7 million of debt could file for bankruptcy in a timelier and more cost-effective manner.
While in bankruptcy reorganization, a small business can negotiate with creditors while keeping the doors open, employees on payroll, and suppliers and vendors paid.
In 2020, a provision in the CARES Act raised the $2.7 million threshold to $7.5 million. This provision was set to expire on March 27. The COVID–19 Bankruptcy Relief Extension Act of 2021 extends this provision, and thus the $7.5 million threshold, for an additional year.
“The Small Business Reorganization Act has served as a lifeline for struggling businesses throughout the COVID-19 pandemic,” Cline said. “Since its inception, 80 percent of small business debtors have chosen to proceed under the provisions of this bill meaning more entrepreneurs have been able to keep their doors open and employees on payroll during these uncertain times. By extending the debt threshold for eligibility, significantly more businesses can take advantage of this bill.”
The bill, which originally passed the House of Representatives on March 17, was amended and passed by the Senate on March 24 and passed again in the House by unanimous consent on March 26.
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