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Are PPP Loans Available to Debtors in Bankruptcy?

On Behalf of | Jul 7, 2020 | Bankruptcy |

Paycheck Protection Program

An SBA loan that helps businesses keep their workforce employed during the Coronavirus (COVID-19) crisis

When businesses across the nation were forced to shut their doors in March due to administrative regulations set to combat COVID-19, mounting economic concerns prompted Congress to enact the Coronavirus Aid, Relief, and Economic Security Act (“CARES”).  Incorporated into CARES was a small business protection effort named the Paycheck Protection Program (“PPP”), which allowed the Small Business Administration (“SBA”) to provide forgivable loans to small business owners to ensure they can pay their employees during the COVID-19 crisis.  Pursuant to CARES, if a PPP loan recipient spends at least 60% of the loan on payroll, and the other 40% on certain designated expenses, they will not need to repay the loan.

Interim Rules released by the SBA suggest bankrupt Debtors are ineligible, but do Bankruptcy Courts agree?

Recently, courts have had to decide whether the SBA can deny businesses in bankruptcy from receiving PPP loans.  In total, five cases seeking injunctions to prevent the SBA from denying debtors PPP loans have come before the courts.  Four out of five of those injunctions have been denied or overturned, with the higher courts siding in favor of the Government, ruling that the debtor had no entitlement to apply for a PPP loan during bankruptcy.  However, one Chief Bankruptcy Judge has ruled in favor of the debtors, stating that the SBA must consider the debtor’s application for a PPP loan without any reliance on the fact that the applicant is currently a chapter 11 debtor.

PPP Eligibility of Debtors in Bankruptcy

If you are a debtor in a bankruptcy proceeding and have been denied a PPP loan by the SBA, please reach out to Scott Bogucki at 716/ 845-6446 or [email protected] to discuss what options may be available to you.