Covid and Bankruptcy

As part of the social distancing protocol, several businesses and well-established organizations in states all across the globe were legally obligated to follow through with lockdown routines, which effectively reduced revenue. Even prominent companies were forced to submit to these regulations and found themselves buckling under the economic fallout from coronavirus. However, the economic damage caused by this infectious virus did not stop at the organizational level. It trickled down to employees and staff members who were either laid off or given a notice about a potential pay cut, given the extenuating circumstances. Overall, almost every American household has experienced a significant decline in income during the pandemic that has spanned the past few months and continues to go on. What you need to know about Covid 19 Bankruptcy Relief Extension Act On 27th March 2021, President Biden signed the official ‘Covid-19 Bankruptcy Relief Extension Act’. The purpose of this act is to recognize the financial hardship imposed by the coronavirus and its associated effects and to provide economic relief. The act is directed towards making it easier for you to file for bankruptcy, but streamlining the processes involved and creating room for remote communication. Filing for bankruptcy can help you avoid paying debts, car loans, bank loans, credit card loans, and evading other forms of money owed to institutions or individuals. It is worth noting that filing for bankruptcy under Chapter 7 does not improve your income, since you are still expected to pay for domestic and personal expenses by yourself. The Covid-19 Bankruptcy Relief Extension Act also allows small and medium-sized businesses to have enough time to try to get back on their feet again. For example, the act increases the maximum debt threshold for small businesses from over $2,000,000 to $7,500,000 for another year. Plus, debtors who are facing financial difficulties due to coronavirus are allowed to modify their payment plan (chapter 13) to buy themselves more time (up to 7 years from when the first payment was supposed to be made) and opt for more flexible payment options. The hope is that this extension act will allow businesses to restructure themselves and resume working like before. However, the harsh reality is that it is often the balance sheets of small and medium-sized businesses that are struck the hardest due to economic fallout, so much so that they are unable to reorganize themselves under the weight of their existing debt or ultimately just fall prey to forces of market competition. The future looks slightly brighter because, at its very least, the Covid-19 Bankruptcy Relief Extension Act has provided businesses with a way forward and bought them time to come up with an executable and sustainable plan. Hopefully, the government will continue to revise the plan and continue to provide additional bankruptcy relief and aid, seeing how the pandemic continues to rage on, even with the vaccine here. For businesses at their all-time low, now is the time to pull in all their resources and plan!