The Small Business Reorganization Act of 2019 (SBRA) became effective on the eve of the economic free fall stemming from the COVID-19 pandemic. Longleaf Law Partner’s bankruptcy law expert, Cindy G. Oliver, explains the new law in our 13-part series, Bankruptcy Buzz.
Part 3 of 13:
A debtor in bankruptcy is not eligible to apply for a Paycheck Protection Program (PPP) loan. And a PPP applicant that becomes a debtor in bankruptcy after submitting the PPP application, but prior to receiving the PPP loan proceeds, must notify the lender and request that the loan be cancelled. There is no prohibition of an individual or business entity from filing bankruptcy after receiving a PPP loan. The jury is still out on what happens to the claim of the PPP lender when a debtor files bankruptcy after receiving PPP loan proceeds. We may find out soon if the anticipated surge of bankruptcy filings occurs.
Obviously, other creditors in bankruptcy cases hope that a debtor’s PPP loan is forgiven so that they don’t have to share the pie with the PPP lender (or the SBA). But whether a bankruptcy filing runs afoul of the forgiveness requirements of a PPP loan remains to be seen. A PPP loan may be too little, too late, but if it is funded before the debtor ends up in bankruptcy, it might be forgivable.
The information provided in this article does not, and is not intended to, constitute legal advice. No action should be taken in any particular circumstance or fact situation with reliance upon the information contained in this article without obtaining the advice of an attorney.