Free CLE Ethics Webinar

Bankruptcy in the COVID-19 Era: Tips for Expanding Your Practice

De Novo Learning Webinar Series, August 2020

Purpose and Description:  This presentation is intended to provide a general overview of bankruptcy practice and developments in bankruptcy law related to the novel coronavirus pandemic for lawyers of all practice areas.  It provides background information about the economic impacts of the pandemic with emphasis on business losses due to stay-at-home, business closure, and shelter-in-place orders issued by the federal, state and local governments.  It then presents a substantive overview of major chapters of the Bankruptcy Code, practical considerations for lawyers considering expanding into bankruptcy practice, and information on coronavirus-related legislative modifications of bankruptcy law and procedure.

This presentation is 1-hour in length and does not contain an ethics component; as such it should constitute 1 general CLE hour.


A. The Bankruptcy Code 11 U.S.C. 101 et seq.
  • CHAPTER 1. General Provisions
  • CHAPTER 3. Case Administration
  • CHAPTER 5. Creditors, the Debtor, and the Estate
  • CHAPTER 7. Liquidation
  • CHAPTER 9. Adjustment of Debts of a Municipality
  • CHAPTER 11. Reorganization
  • CHAPTER 12. Adjustments of Debts of a Family Farmer or Family Fisherman with Regular Annual Income
  • CHAPTER 13. Adjustment of Debts of an Individual With Regular Income
  • CHAPTER 15. Ancillary and Other Cross-Border Cases
B. General Points About Bankruptcy
  • Upon filing, the automatic stay goes into effect and creditors must cease collection efforts, including communications, garnishment, repossession, and foreclosure.
  • A trustee is assigned to each case. The trustee’s role is to represent the interests of all creditors.  In a Chapter 7, this requires the trustee to determine whether the debtor has sufficient income or assets to pay back even a portion of his debts.  In a Chapter 13, the trustee’s role is to ensure that all disposable income is being used to fund the Chapter 13 Plan.
  • The attorney representing the debtor is required to investigate the debtor’s financial affairs prior to filing to ensure that the information provided is accurate. This includes reviewing bank statements, tax returns, pay advices, and other financial information.
C. Chapter 7 Liquidation
  • Governed by 11 USC 701 et seq. and sometimes referred to as a “liquidation”. The debtor is required to pay all of his or her non-exempt assets toward his debts.
  • Exemptions are determined by state law. Federal exemptions are available, but whether they can be applied is a matter of state law.
  • Examples: Florida allows a $1000 exemption for a motor vehicle.  If the debtor’s car is worth $5,000, and he owes $4,000 on a loan secured by the car, the car is fully exempt.  If the car is worth $5500 and is subject to a $4000 loan, the trustee may sell the car to pay the $500 in unexempt equity to creditors.  In reality, it is unlikely that the trustee would choose to do so because the funds the trustee would net after her commission and the costs of sale aren’t sufficient to justify the expense of administering the asset.
1. Eligibility
  • Not everyone is eligible for a chapter 7. A debtor’s household income must be below a certain amount in order to qualify.  Debtors who do not qualify will usually opt to file under Chapter 13.
  • The debtor’s income is calculated under the “means test”. The means test looks at the debtor’s income (other than social security(for the six months prior to filing bankruptcy and allows for certain deductions from income, such as unusual medical expenses.
  • If the debtor’s income is below the designated amount, there is “no presumption of abuse”. If it is over the designated amount, a “presumption of abuse” arises, and the debtor must either rebut the presumption or file under Chapter 13 if he wishes to proceed with filing. 
2. Assets
  • In a typical no-asset case, the case will be set for the meeting of creditors, also referred to as a 341 hearing for the section of the code (11 U.S.C. 341) that requires it be held, within 40 days of filing.
  • After the hearing, the trustee will issue a “no asset” report, and his or her involvement typically ends. A discharge will issue approximately 60 days after the 341, and the case will close shortly thereafter
  • If the trustee believes there are assets, he or she will issue a notice to that effect and invite creditors to submit claims. This does not prevent the debtor from receiving a timely discharge, but the case will not close until the assets are sold or redeemed, all claims are paid, and the trustee’s expenses and commission are approved and paid.
  • Once a Chapter 7 case is filed, it is extraordinarily difficult for a debtor, particularly one with unexempt assets, to dismiss. This is why it is critical to conduct a thorough investigation of your client’s finances. If am unexempt asset turns up after filing, the trustee can take it and distribute it to creditors.
  • Assets typically come in to the bankruptcy estate in one of three ways – (1) unexempt assets that the debtor owns at the time of filing (2) claims the debtor holds against third parties, such as from personal injury cases or money owed to the debtor (3) money or property that the debtor paid to an insider or transferred to someone else before filing, but within the fraudulent transfer statute of limitations and (4)
3. Discharge
  • A creditor may object to discharge. Certain debts, such as student loans and certain court fines, are not dischargeable by statute and the creditor is not required to object.  Other debts, such as those incurred through fraud or excess spending leading up to bankruptcy, may be nondischargeable but the creditor must object to prove the grounds. 
  • The debtor’s liability on secured debts, such as mortgages and car loans, is discharged in a Chapter 7. However, if the debtor does not continue payments, the collateral may be repossessed or foreclosed.
D. Chapter 13 Reorganization
  • A Chapter 13 bankruptcy is typically filed because (1) the debtor has too much income to qualify for a Chapter 7; (2) the debtor has unexempt assets that he wants to keep or (3) the debtor is behind on a secured debt and wants to keep the collateral.
  • In a Chapter 13, the debtor is required to pay his debts over 36-60 months. To do so, the debtor must propose a Plan that pays all of his secured debts and his priority debts (such as taxes and domestic support obligations) in full during the term of the Plan.  In addition, the debtor must pay unsecured creditors to the extent that he or she has disposable monthly income left over after payment of these creditors and reasonable living expenses.
  • The length of the Plan is determined by the debtor’s income. Generally speaking, if the debtor falls within the income limits to qualify for a Chapter 7,  he will only be required to pay into the plan for 36 months.  However, the debtor may elect to pay a longer-term.
  • Secured debts are entitled to interest. Interest calculations are already built into mortgage payments and arrearages, so are typically applied to car payments and other secured loans.  In most cases, the creditor will only receive the “Till Rate” (named after Till v. SCS Credit Corp, 541 U.S. 465 (2004). which is a rate equal to the prime rate plus a factor determined by local practice.
  • A debtor is required to contribute all of her “disposable monthly income” to the plan. DMI is determined by an extremely complicated formula.  Most trustee objections to a proposed Plan are based upon a perceived failure to contribute all DMI. 
  • Unsecured creditors may receive anywhere from 0 to 100% of the amount they are owed, depending upon whether any portion of the required payment is left after payment of secured and priority debts.



  • Take a case from your local legal aid to get started. You can gain some experience, and likely have an experienced attorney from legal aid help you with any issues that arise
  • Review the dockets from your local court. Most judges publish their dockets, and you will be able to get an idea of the types of motions that are typical in bankruptcy cases.
  • Sit in on hearings. All 341 meetings  and, in most courts, motion hearings are being conducted by telephone right now.  You may be able to listen in to get an idea of what to expect.
  • It is critical to review the Code, the Bankruptcy Rules, and your court’s local rules, administrative procedure manuals, general orders, and administrative orders. In addition, review the U.S. Trustee’s Office manual and any memos, etc. posted by your local Chapter 13 Trustee. Unfortunately, many local procedures are unwritten.
  • Use Pacer to randomly pull dockets from other Chapter 7 and Chapter 13 cases in your district to see what documents are required to be filed at the beginning of a case, what objections your trustee typically makes to Chapter 13 plans, how they are resolved, and to learn about other common issues that arise in your district.
  • You absolutely must subscribe to a software program to prepare the petition. Best Case has for years been the industry standard, but more and more attorneys are complaining about the lack of cloud based storage.  NextChapterBK and Jubilee offer per case pricing, which will allow you to try the software without a commitment.
  • Consider joining the National Association of Consumer Bankruptcy Attorneys (NACBA) or the American Bankruptcy Institute (ABI). NACBA has mailing lists that provide helpful practice information.  There are also FB groups specifically for consumer bankruptcy attorneys.



  • Fees are typically set by local practice. Fees must be disclosed in the Petition filed in a Chapter 7, so reviewing local filings will give you an idea of what is charged in your local area. 
  • Each district has a set “no look” fee for Chapter 13 cases, meaning that the court will award that much in fees without you having to submit detailed time records. Most no-look provisions include a flat amount that will be paid after confirmation (typically in monthly payments for 12 months) as well as set amounts for additional motions that may be necessary during the course of the case.
  • Efficiency is key. You will spend a lot of time chasing clients for documents and information.  If you are first starting out, handling this process yourself is great experience, but at some point an assistant and/or paralegal will be necessary to handle documents and keep clients informed about the status of their case.  Consider outsourcing to minimize costs and manage ebbs and flows in filing volume.


A. Emergency Procedural Measures
  • Courts have had to make accommodations. All 341 hearings for cases filed before October 2, 2020 will be conducted by telephone.  Most districts are also conducting motion hearings by phone through at least August 31.  Expect this to continue.
  • The requirement to obtain a wet signature on documents filed with the court has been waived in most jurisdictions. Electronic consent, whether in the form of an e-signature of confirming email may be substituted.  This is a temporary measure, but most practitioners are hoping it will be made permanent.
  • The courts have seen an influx of business filings under Chapter 11. Consumer cases are expected to follow, but it is anyone’s guess as to when.  Consumer filings are currently down significantly.
  • Bankruptcy courts will have to make better use of technology. For example, some districts are using CourtCall, which can cost up to $75 per hearing.  Debtors simply cannot afford this, and the margins on these cases for attorneys are too low for this kind of expense.
B. The 2020 CARES Act:
Business protections:
  • The CARES Act amends the Small Business Reorganization Act of 2019 (the “SBRA”), which became effective February 19, 2020, to temporarily increase the debt threshold for filing for relief under the new Subchapter V of Chapter 11 of the Bankruptcy Code from $2,725,625 of debt to $7,500,000. The eligibility threshold will revert to $2,725,625 after one year.  The SBRA is designed to enable small business debtors to reorganize their financial affairs in a more efficient and cost-effective manner while also maintaining more control over their businesses.  Historically, Chapter 11 reorganization has not been a viable option for most financially struggling small businesses due to the length and unmanageable expense of the process.  Some of the key features of the SBRA are as follows:
  • Debtors (businesses or individuals) with at least 50% of their debts being commercial debt and total debts not exceeding $7.5 million are eligible to file for relief under Subchapter V of Chapter 11 of the Bankruptcy Code.
  • Subchapter V debtors can take advantage of many of the protections of Chapter 11 without being subject to the same timelines. In an SBRA case, the bankruptcy process will be quicker.  In fact, the deadline for filing a plan is just 90 days (versus 120 days in a Chapter 11 case) after the case is commenced.
  • Subchapter V debtors are not obligated to pay quarterly U.S. Trustee’s fees, which in a traditional Chapter 11 case can be significant.
  • In an SBRA case, a creditors committee will generally not be appointed. Among other things, this will help to minimize the chances of disputes and distractions that a Subchapter V debtor might face in a Chapter 11 case.
  • A standing trustee will be appointed in every SBRA case. The trustee’s supervisory role will include: (i) helping the Subchapter V debtor to formulate a plan; (ii) reporting fraud or misconduct, and (iii) and monitoring distributions under the plan.  Unlike a trustee that might be appointed in a Chapter 11 case, a SBRA trustee is not concerned with operating the Subchapter V debtor’s business.  Instead, the trustee’s goal is to help the debtor resolve issues with creditors and move the SBRA case along.
  • In an SBRA case, only the debtor is permitted to file a plan of reorganization, eliminating the risk of competing plans being filed by creditors.
  • In an SBRA case, a disclosure statement is not required, unless the Court orders otherwise.
  • A Subchapter V plan may be confirmed even if all impaired classes vote to reject the plan. In a regular Chapter 11 case, a Court cannot confirm the plan unless at least one impaired class of unsecured claims votes to accept the plan.
  • Unlike a typical Chapter 11 debtor, in an SBRA case, a small business debtor may stretch payment of administrative expense claims out over the term of the plan.
  • Equity holders may be able to keep their equity interests in the business without the need to contribute new value because there is no “absolute priority rule” under Subchapter V.  This means that business owners can keep their interests in the company even if unsecured creditors will not be paid in full under the plan.
Consumers protections:
  • The CARES Act also amends certain provisions under Chapters 7 and 13 of the U.S. Bankruptcy Code to help consumers who will be or have been financially harmed by the COVID-19 pandemic. The key changes that consumers should be aware of are as follows:
  • Chapter 13 debtors with existing confirmed plans who have suffered a “material financial hardship” due to COVID-19 will be allowed to seek plan modifications, including extending their payments for up to seven years after their first plan payment was due, thereby reducing their monthly payment obligation.
  • Coronavirus related payments received by families and individuals from the federal government, as a result of the CARES Act and other stimulus, will not be included in the definition of “income” for eligibility purposes, nor will such payments be included in the calculation of “disposable income” for plan confirmation purposes. This change is designed to permit consumer debtors to receive the full benefit of stimulus payments.