The President Signs Four New Bankruptcy Bills Into Law

On August 23, 2019, President Trump signed into law four bipartisan bills passed by Congress with the support of the American Bankruptcy Institute and several other organizations[1]:

H.R. 2336, the "Family Farmer Relief Act of 2019"

The Family Farmer Relief Act of 2019 increased the debt limit used to determine whether a family farmer is eligible for relief under Chapter 12 of the Bankruptcy Code to $10,000,000 from the previous $4,411,400 limit.  

Proponents of the bill have long argued that the increase was needed since farm operations and corresponding debts have risen significantly since Chapter 12 was first instituted in 1986[2]. The old debt limit was so low that many farmers were ineligible to file Chapter 12, and often had to file Chapter 11 business reorganizations. Chapter 11 provisions are not designed to give farmers the relief they need to reorganize their debts and continue to farm. Farmers who were unable to file Chapter 12 often had to liquidate under Chapter 11.

Chapter 12 contains special tax provisions that better allow eligible farmers to craft a feasible plan to repay their secured debt. Some tax debt associated with the sale of property is subject to priority stripping, meaning that these tax liabilities may be treated as unsecured debt and ultimately discharged. Without this special provision, tax liabilities would absorb substantial income otherwise available to create a feasible repayment plan. These farmers have no option but to liquidate [3].

H.R. 2938, the "Honoring American Veterans in Extreme Need Act of 2019" (HAVEN Act)

The HAVEN ACT excludes disability benefits paid by the Department of Veterans Affairs and the Department of Defense from the calculation of monthly income, for purposes of the Bankruptcy Code's means test for determining whether a veteran must file Chapter 13 Bankruptcy. 

Previously, only disabled Veterans with at least 30% disability from service or released/discharged due to disability were excluded from the means test. Prior to the HAVEN Act, a veteran may have had to contribute some portion of his or her disability benefits to pay creditors in a Chapter 13 Bankruptcy. With the passage of the Haven Act, more veterans will now be eligible to file a Chapter 7 Bankruptcy. Also, the HAVEN Act will correct the unequal treatment of various disability benefits under bankruptcy law. Previously, only Social Security disability benefits were excluded from the means test. Now veterans' disability benefits will be treated like Social Security benefits – neither will be treated as income on the means test. 

H.R. 3304, the "National Guard and Reservists Debt Relief Extension Act of 2019"

The National Guard and Reservists Debt Relief Extension Act of 2019 extends for 4 years, through December 18, 2023, the exemption from certain bankruptcy means-testing for members of the National Guard and reservists of the Armed Forces.

The National Guard and Reservists Debt Relief Act of 2008 created a temporary exception for members of the National Guard and Reserve who serve on active duty or in a homeland defense activity for at least 90 days. The current reauthorization was set to expire in December 2019[4].  Members of the National Guard and Reserves frequently receive higher pay while on active duty than they do in their civilian jobs. Without this legislation, the members who file for bankruptcy would be evaluated based on their current income in addition to previous active duty pay, thereby causing their disposable income to be overstated. This can result in a debtor failing to qualify for Chapter 7 Bankruptcy relief or in a Chapter 13 case, a higher monthly plan payment than they can afford with their post-active duty income.

H.R. 3311, the "Small Business Reorganization Act of 2019"

The Small Business Reorganization Act of 2019 establishes subchapter V to Chapter 11 of the Bankruptcy Code under which small business debtors can reorganize using more simplified and expedited procedures.

Chapter 11 was designed for administering complex business reorganizations involving multi-million-dollar companies. Despite containing several sections specifically focused on small business debtors, Chapter 11 created difficulties for small businesses to reorganize, including high costs and procedural roadblocks. The Small Business Reorganization Act of 2019 addresses these issues, and will lead to more successful restructurings, reducing liquidations, and increasing recoveries to creditors[5].

Debtors’ and creditors’ rights, obligations, and potential liabilities under the Bankruptcy Code can be hard to navigate. If you need assistance understanding how to safely proceed in Bankruptcy Court, contact the experienced litigation attorneys at Goosmann Law in our Sioux City, Sioux Falls, and Omaha offices.

[1] Lally, Elizabeth. “Re: ABI Breaking News: Four New Bills Signed into Law this Afternoon.” Message to Warren Ford. 23 August 2019. E-mail.

[2] Senate Passes Small Business Reorganization Act, HAVEN Act and Family Farmer Reorganization Act. (2019, August 1). Retrieved from https://www.abi.org/newsroom/press-releases/senate-passes-small-business-reorganization-act-haven-act-and-family-farmer

[3] Tidgren, K. (2019, August 1). Congress Passes Bill to Increase Chapter 12 Debt Limit. The AG Docket, Retrieved from http://www.calt.iastate.edu

[4] Graham, Feinstein Introduce the National Guard and Reservist Debt Relief Extension Act. (2019, July 16). Retrieved from https://www.judiciary.senate.gov/press/majority

[5] Grassley, Bipartisan Colleagues Introduce Legislation to Help Small Businesses Restructure Debt. (2019, April 9). Retrieved from https://www.grassley.senate.gov/news/news-releases