Congress passes new coronavirus relief package
Last week, Congress passed a new $484 billion coronavirus relief package called the Paycheck Protection Program and Health Care Enhancement Act. President Trump signed the bill into law on Friday, April 24, 2020. The new law largely replenishes the depleted Paycheck Protection Program (“PPP”), a forgivable loan program created by the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act. Here is a rundown of the new legislation:
$321 billion for the Paycheck Protection Program
A substantial portion of the relief package will be used to restore funding for the newly created PPP. This popular program gives loans of up to $10 million to small businesses, portions or all of which may be forgiven if used for qualified purposes, like payroll costs, utilities, and rent. Approximately $60 billion of the new PPP funding will be set aside for businesses that do not have existing banking relationships, which is aimed to assist rural and minority-owned businesses which may have missed out on the first round of PPP loans. If you have already submitted an application for PPP money but did not get approved before the program ran out of money, you should contact your bank or lender to determine your next steps. For more information about the PPP and the CARES Act, click here.
$75 billion for hospital grants
The new law also allocates $75 billion for the Public Health and Social Services Emergency Fund. The purpose of the fund is to prevent, prepare for, and respond to the coronavirus pandemic, both domestically and internationally. Grant funds are available to eligible hospitals and health care providers and can be used to cover expenses or lost revenues that are attributable to the coronavirus pandemic.
$60 billion for SBA disaster assistance loans and grants
The Small Business Administration will receive an additional $60 billion for its Economic Injury Disaster Loan (“EIDL”) program. EIDL funds can provide vital economic support to your small business to help overcome the temporary loss of revenue caused by the coronavirus pandemic. As we explained in one of our earlier alerts, depending on a small business’ situation, and even though an EIDL is not forgivable like a PPP loan, it may make more economic sense for a small business to take out an EIDL and claim the Employee Retention Credit (“ERC”) than to apply for a PPP loan. The ERC is not available to employers who take PPP loans. To learn more about the EIDL program, click here.
$25 billion for coronavirus testing
Finally, Congress allocated an additional $25 billion for enhanced coronavirus testing. Ensuring sufficient testing capacity will be essential as more states look to reopen their economics in the coming weeks.
This new coronavirus relief package is the fourth major congressional act designed to address the ramifications of the COVID-19 pandemic adopted in the last two months but is unlikely to be the last. Indeed, there has been some discussion of a new relief package for state and local governments. The attorneys at Roedel Parsons will continue to monitor and analyze the evolving realm of state and federal COVID-19 legislation.
How the CARES Act affects your student loans
The new Coronavirus Aid, Relief, and Economic Security (“CARES”) Act includes important provisions that may affect your student loans.
No federal student loan payments
Federal student loan payments are suspended until September 30, 2020. This means that you will not be required to make any payments on your student loans for the next few months. And more importantly, you will not be penalized for not making payments during this period. Your credit score will not be affected. You do not need to take any action to take advantage of this temporary suspension; your payments will be automatically suspended by your student loan service provider. Please note, however, that this suspension applies only to federal student loans—not private student loans. To determine whether your student loans are eligible for this temporary suspension, please reach out to your loan service provider.
No interest on student loan payments
In addition to a temporary halt on payments, the interest rate on federal student loans has been reduced to 0% until September 30, 2020. Your federal student loans will not accrue interest during this period.
No garnishment of wages or benefits
If you defaulted on your federal student loans, the CARES Act provides a temporary reprieve by suspending enforcement or collection practices. Your wages, Social Security benefits, and tax refunds cannot be garnished or seized until September 30, 2020. If you are in default, it is important to use this suspension period to get out of default, if possible.
Public service loan forgiveness
If you are participating in the public service loan forgiveness program, you may be concerned that not making payments on your federal student loans during the suspension may affect your ability to receive loan forgiveness. Fortunately, this is not the case. Your non-payment through September 30, 2020 will be counted toward the 120 payments for public service loan forgiveness purposes.
If you have federal student loans, the CARES Act gives you some important tools to respond to the ongoing coronavirus pandemic. You can use the money that would normally go towards your loan payments for more critical needs, like food or housing. But if you are in a position to keep making loan payments, you are free to do so.
To learn more about the CARES Act, click here.
CARES Act and bankruptcy law changes
The new Coronavirus Aid, Relief, and Economic Security (“CARES”) Act affects a variety of different areas of the law, and bankruptcy law is no exception. Here are the three primary changes to the U.S. Bankruptcy Code under the CARES Act:
Changes to the definition of “income”
The CARES Act modifies the definition of “current monthly income” to exclude coronavirus-related payments from the federal government, such as individual stimulus payments. This modification applies to bankruptcy under both Chapters 7 and 13.
Additionally, the CARES Act provides that coronavirus-related payments are not considered in determining a debtor’s “disposable income” for a Chapter 13 plan of reorganization. This change should prevent a debtor’s income from being artificially inflated (due to receipt of one-time coronavirus-related payments) for purposes of their ability to pay creditors in a Chapter 13 plan of reorganization.
Modifications to confirmed plans for Chapter 13 debtors
The CARES Act allows Chapter 13 debtors with confirmed plans to modify their plans due to COVID-19-related hardships. Specifically, the debtor must be experiencing a “material financial hardship” that is “directly or indirectly” caused by the ongoing coronavirus pandemic. This provision may give some debtors greater flexibility in responding to the coronavirus pandemic.
Subchapter 5 changes
Finally, the CARES Act increases the debt limit for a debtor to qualify for bankruptcy under Subchapter 5, which is a streamlined and simpler process for a debtor to confirm a reorganization plan. Normally, to take advantage of the Subchapter 5 process, a debtor had to be engaged in business and have a total debt not exceeding $2,725,625 in the aggregate. The CARES Act nearly triples that debt limit to $7.5 million. This increase will allow more small businesses suffering the economic consequences of the COVID-19 pandemic to qualify for the streamlined Subchapter 5 process.