Bankrupt Businesses Can Now Benefit From PPP Loans

They say timing is everything. Nowhere is that more true than in the bankruptcy world. Filing too soon or too late could mean the bankruptcy laws do not work as well for you as they do for other people or businesses. The most recent example of this comes courtesy of the pandemic. 

The Paycheck Protection Program (PPP) is a federal loan program created as part of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). The loans, which are backed by the Small Business Administration (SBA), are designed to provide a direct incentive for small businesses to keep their workers on payroll during the economic slowdown caused by the COVID-19 pandemic. 

Many businesses have used PPP loans to stave off bankruptcy during the pandemic. But what about companies that were already in bankruptcy? As we have mentioned on this blog many times, a lot of companies that file for bankruptcy are not closing up shop. Bankruptcy is a great tool for companies that want to reorganize and refocus so they can move forward. These companies go into and through bankruptcy while still operating.

When Congress passed the Consolidated Appropriations Act in December, it authorized bankruptcy courts to approve PPP borrowing by debtors who had filed under Chapter 11, 12, and 13. (Note – bankruptcy filers must typically get the court’s permission in order to take on more debt.) 

However, the law indicates that the loans will only be available once the SBA submits a written determination to the Executive Office of the U.S. Trustee—the Justice Department’s bankruptcy watchdog—that eligible debtors can apply for PPP loans. The SBA has not yet sent the required note. The agency has, however, put out new guidance indicating that it does not consider businesses with a court-confirmed reorganization plan to be in bankruptcy. This makes those companies eligible for PPP loans. 

Some bankrupt businesses are now racing to get their reorganization plans approved so they can apply for PPP loans before the May 31 deadline. Hanson & Payne is working with our Milwaukee area clients interested in speeding their reorganization so they can get PPP funds. The bankruptcy courts are aware this is happening, but it is unclear how accommodating they can be based on the tight timeline. 

At Hanson & Payne, our team of experienced bankruptcy attorneys is always looking out for changes in the law that may benefit our clients. Sometimes those changes are to the bankruptcy laws themselves. Other times, like now, the changes are to other laws that are not necessarily drafted with bankrupt parties in mind. Our years of work in this area and our problem-solving approach to the law mean we are always finding new ways to help our Milwaukee area clients move forward. 

If you have questions about PPP loans and bankruptcy, or just questions about bankruptcy in general, Hanson & Payne is here for you. Please contact us today to schedule an initial consultation.