CARES Act: More than Stimulus Money
April 15, 2020
By: Kristina M. Stanger
THE CARES Act and local laws provide business and individuals more tools for economic relief than just money.
While headlines tend to focus on the $2 trillion economic stimulus found in The Coronavirus Aid, Relief and Economic Security Act of 2020 (“CARES”), the CARES Act provides more tools than just money for relief to those in financial distress. Here’s a quick overview of what the CARES Act and other laws mean for student loan relief, evictions, foreclosures, bankruptcies, and enabling the small business to restructure and survive.
Student Loan Debt
The CARES Act allows federal student loan borrowers (for loans within the last 10 years) to defer student loan payments, principal, and interest for 6 months, through September 30, 2020, without penalty to the borrower for all federally owned loans. CARES § 3513. The United States Department of Education is tasked to provide notice within two weeks from the Act to those folks that are eligible to elect this suspension. The Act also put garnishments and involuntary collections from defaulted student loan on hold.
Foreclosures and Evictions Moratorium
The CARES Act implemented a 60 day foreclosure moratorium on “federally backed” residential mortgages beginning on March 18, 2020. CARES § 4022. “Federally backed” is a new term and you should think of the qualifying loans in terms of FHA, Freddy Mac, or the VA. A residential borrower also has a right to request a forbearance for 180 days if the borrower is experiencing financial hardship. CARES § 4023. There are also eviction restrictions for certain residential properties. CARES § 4024.
Additionally, Governor Reynolds’ declarations have suspended both residential and commercial foreclosures and evictions for nonpayment of rents until April 30, 2020. Evictions for clear and present danger and fraudulent tenants can still be filed. Our litigation experts have noticed, however, that Courts are extending consideration of any of these types of pending matters into June or indefinitely at this time.
If you are a landlord, property manager or secured lender, there are still steps you can take short of sale and eviction. We would be happy to assist.
Small Business Restructuring
On August 23, 2019, the President signed the Small Business Reorganization Act (SBRA) which allowed a more streamlined and less costly restructure process for business with a debt limit of $2,725,625 and below.
Just six months later, through the CARES Act (Section 1113(A)), the SBRA debt limit was increased to $7.5 million. This new SBRA debt threshold sunsets in 1 year (or on March 27, 2021). A business’s eligibility for this type of bankruptcy treatment is determined on the company’s Chapter 11 filing date. There is no question the SBRA will be a benefit to struggling businesses or those looking to restructure. If the business’s debt is below $7.5 million, the business will qualify to file for a Small Business Chapter 11 reorganization which allows them to more quickly and more economically restructure. More information on SBRA resources can be found here.
Please reach out to us today to see how we can help you possibly sell or keep your business while shedding debt.
What can businesses do now to protect their bottom line in this time of economic uncertainty?
The coronavirus pandemic creates an unknown future for many businesses. Here are five Economic Tools in addition to recent legislation you should consider to successfully position your business:
- Tool 1: Effectively use and protect cash.
- Tool 2: Preserve rights: file mechanic’s liens; negotiate work outs; engage in proactive conversations with lenders; amend interest rates or lease terms; pursue forbearance of statutes of limitations.
- Tool 3: Utilize active collection: breach of contract actions are not stayed by any of the executive orders so far; execute on judgments; collect accounts receivable or consider implementing new payment terms.
- Tool 4: Sell assets/downsize (‘right size”); protect Intellectual Property.
- Tool 5: Merge, Acquire, Restructure – Use the new Subchapter V of Chapter 11 bankruptcy or CARES Section 1113(a). See above. With change comes opportunity to restructure, collaborate, downsize or grow.
Other individual bankruptcy relief?
For individuals already in Chapter 13 bankruptcy plans, the CARES Act now allows you up to seven years to modify and complete your plans. In addition, the Act also allows you to retain government payments related to COVID. CARES § 1113(B).
If you have any questions on the CARES Act and any rights you may have as a business, please feel free to reach out to our Creditor Rights and Bankruptcy practice group. We draw on a team of experts from many disciplines to solve problems, protect your business and help you reach your goals.
Additional CARES Act Coverage
- CONGRESS INCREASES APPROPRIATIONS TO CARES ACT PROGRAMS
- CARES ACT ESTABLISHES PAYCHECK PROTECTION PROGRAM
- HOW TO APPLY FOR A PAYCHECK PROTECTION PROGRAM LOAN
- 7 FAQS ON UPDATED GUIDANCE TO PAYCHECK PROTECTION PROGRAM
- PPP LOAN FORGIVENESS: AN OVERVIEW
- BEST PRACTICES TO MAXIMIZE PAYCHECK PROTECTION PROGRAM LOAN FORGIVENESS
- FED LAUNCHES MAIN STREET LENDING PROGRAMS FOR SMALL AND MID-SIZED BUSINESSES
- EXPANSION OF OTHER LOANS PROGRAMS
- NEW AND MODIFIED TAX PROGRAMS UNDER CARES ACT
- CARES ACT: EMPLOYEE BENEFIT PROVISIONS
- WHAT CARES ACT MEANS FOR HIGHER EDUCATION INSTITUTIONS
- CARES ACT PROVIDER RELIEF FUND
- ADDITIONAL DISTRIBUTION FROM CARES ACT PROVIDER RELIEF FUND
- CARES ACT PROVIDES INCREASED OPPORTUNITIES FOR INDIVIDUALS TO DEDUCT CHARITABLE CONTRIBUTIONS
- MEDICARE ACCELERATED AND ADVANCE PAYMENT PROGRAM
- FEDERAL RELIEF FOR HEALTHCARE PROVIDERS