Home Posts tagged relief

The State Needs a Gas-tax Holiday

By
Opinion

Editorial

At the midway point in what has been a historically difficult year for consumers, calls are growing increasingly louder for tax relief in the Commonwealth, and especially gas-tax relief.

And it’s time those pleas were answered.

Indeed, at a time when the state is essentially swimming in cash — the rainy-day fund saw $2 billion in capital gains tax collections between Feb. 1 and May 31 — it only makes sense for the state to bring from relief to those who are being adversely impacted by record-high prices at the pump.

And that’s …. just about everyone, from families looking to take vacations to businesses of all sizes just trying to carry on day-day activities. Prices have gone up in almost every category of consumer goods and services, but the huge increase in gas prices touches just about everyone, and it is having a very real impact.

That not-so-magic number of $5 per gallon was passed recently in the Bay State — and just about every other state in the country. In fact, it’s already well above that figure, which represents more than a number. For many, it’s a threshold. When gas hits that mark, people start to cut back.

They cut back on travel — which means fewer visits to the businesses, and there are many of them in this part of the state, in the tourism and hospitality sector that were already reeling from two and half years of pandemic and were looking toward 2022 as a return to something approaching normal.

Or … people and businesses cut back on other things, because they simply can’t cut back on travel.

And when they cut back, an economy that is already on the edge when it comes to heading into a recession, may just tip in the wrong direction.

If times were different and the state was not flush with cash, we could almost see a reason for not moving forward with some gas-tax relief — almost. But not in these times. Not when the state is far from hurting fr revenue and when many other states have seen the wisdom of providing residents with some form of gas-tax relief.

Not at a time when many businesses are finally starting to make it almost all the way back from the depths of the pandemic and need help, not another punch to the stomach.

Not at a time when many businesses have been forced to pass along price increases to consumers because of rising cost of labor, raw materials, and just about everything else, and now they’re faced with passing on more because of the rising cost of gasoline.

We’re not sure what a tax-gas holiday would cost the state when it comes to its credit rating or overall revenues. But at this critical time for the business community and the economy as a whole, the cost of not putting some relief in place would certainly be much higher.

It’s time for state lawmakers to do the right thing and provide the Commonwealth with some much-needed help at the pump. v

Editorial 2

By
Opinion

A Step in the Right Direction

Late last month, Gov. Charlie Baker, heeding a call from a number of business groups that have steadily pushed for unemployment-insurance (UI) relief, proposed using $1 billion in state surplus money to help ease the burden facing the state’s business community from the widespread layoffs that occurred during the pandemic.

The governor filed a supplemental budget proposal with the Legislature that would set aside the $1 billion for unemployment rate relief as part of a broader $1.6 billion plan to spend the bulk of what remains of a massive, $5 billion state budget surplus from the fiscal year that ended on June 30.

If approved, the measure certainly won’t cover what is expected to be a $5 billion shortfall in the state’s UI fund — a shortfall that the Baker administration and the Legislature decided to address with an assessment that businesses will pay over the next 20 years or more — but it will help reduce the burden on the state’s businesses, and it represents a minor breakthrough of sorts when it comes to this administration and the business community.

Baker’s proposal shows that at least some people are paying more than lip service to the plight of the state’s businesses, which have often been overlooked when it comes to the long list of victims of this pandemic. Despite large amounts of local, state, and federal assistance in many different forms, from grants to loans, businesses in many sectors are still struggling in the wake of the pandemic.

This spring and summer have bought some relief to those in many sectors, including hospitality and tourism, but the road back to normal, pre-pandemic levels of revenue and profit is paved with uncertainty, especially as the highly contagious Delta variant continues to gain strength.

Businesses are, by and large, and to one degree or another, regaining their footing. But this improved stability, if it can even be called that, is threatened by many different forces — including the huge bill that has come due from so many of the state’s residents being forced into unemployment by the pandemic.

As we’ve said before, the state’s businesses didn’t cause the pandemic, and they should not have to bear the brunt of paying the enormous unemployment-insurance burden now facing the Commonwealth — not when the state has roughly $5 billion in federal American Rescue Plan Act funds at its disposal and the huge surplus from FY 2021, resulting from a flood of federal aid and better-than-expected tax revenue.

In announcing his proposal regarding unemployment insurance, Baker said “this UI piece would send a big, positive message to employers and employees that we’re looking to try to help them with what is going to be one of the biggest expenses … because of the pandemic.”

He’s right, but it’s more than a message — it’s a solid step, and hopefully a solid first step — toward addressing the unemployment-insurance deficit.

The Legislature will have a lot on its plate when it gets back in session after Labor Day. We hope the governor’s UI proposal gets the proper consideration and eventually becomes part of the plan to spend down the rescue-plan monies and the deficit.

Things are better for the business community, but many challenges remain, and this proposal is a big step in the right direction.

 

What’s in the New COVID-19 Relief Package for Contractors?

By Contributor
Construction

Something to Build On

By Joe Bousquin

The term ‘construction’ appears 636 times in the $908 billion pandemic relief package and $1.4 trillion omnibus spending bill passed by Congress and signed by President Trump at the end of December.

In other words, while the relief package was less than half the size of last spring’s $2.2 trillion Coronavirus Aid, Relief, and Economic Security Act, there’s still plenty in the overall bill for contractors to be happy about.

“Lots of construction spending is always a good thing, as long as everyone has access to it,” said Kristen Swearingen, vice president of Legislative and Political Affairs at Associated Builders and Contractors. Her cautionary tone refers to the Protecting the Right to Organize Act, which many non-union contractors oppose, potentially being passed in the 117th Congress after Democrats regained control of the Senate earlier this month.

But in general, construction advocates said the new pandemic relief package should be viewed as a win.

“This bill for the construction industry has a lot of good things overall,” said Jimmy Christianson, vice president of Government Relations at Associated General Contractors of America. “I would say, on the list of the many things we were asking for, we got probably 80%.”

“This bill for the construction industry has a lot of good things overall. I would say, on the list of the many things we were asking for, we got probably 80%.”

Nevertheless, one lament is that the package doesn’t include liability protection for employers against lawsuits from employees who were exposed to or became infected with COVID-19 at work.

Here’s a closer look at some of the provisions that should help contractors in 2021:

• Paycheck Protection Program. There are several wins for contractors in the the legislation’s renewed PPP funding, including a provision to ensure expenses paid for with forgiven PPP loans are tax-deductible, an issue many contractors were wringing their hands over last fall.

• Expansion of the Employee Retention Tax Credit. This gives qualifying employers a $5,000 credit per worker for employees not paid with PPP funds in 2020, as well as a $7,000 credit per worker per quarter in the first half of 2021.

“That’s a huge deal for construction companies and employees to help manage the continuing uncertainty that’s still happening,” Christianson said.

• State transportation funding. One of the headline numbers for contractors is the $10 billion earmarked for state DOTs, many of which saw their funding decline in 2020. That should provide relief for road and other civil builders who have increasingly felt the impacts of stalled projects.

“It will help mitigate the impact of bid-letting delays and project cancellations that we saw in 2020 throughout the country,” Christianson said. “And the fact that it’s dedicated funding means that states can’t use it for other things.”

• School construction. The package also includes $82 billion for education, at least some of which can be used for construction and renovations post-COVID-19, when students return en masse to classrooms.

 

Joe Bousquin reports on the construction industry for Construction Dive.

HCC Receives $40,000 Grant for COVID-19 relief    

By
Daily News

HOLYOKE — The Holyoke Community College Foundation has received a second grant in as many months to help students facing financial emergencies because of COVID-19.

In its latest round of grants, the Community Foundation of Western Massachusetts awarded $40,000 to HCC from its COVID-19 Relief Fund. In July, the Community Foundation awarded the HCC Foundation $35,000. All $75,000 went into the President’s Student Emergency Fund, which is managed by the HCC Foundation.

“Every week, we are seeing more and more applications from students in need of emergency support,” said Amanda Sbriscia, vice president of Institutional Advancement and executive director of the HCC Foundation. “Each student applicant hopes to begin the fall semester on the right foot, and it’s our job to keep them focused on their academic success.”

Thanks to CFWM’s first grant to HCC, 67 HCC students received emergency funding with an average disbursement of $522. Already, in the past two weeks 15 additional students have received emergency aid.

“We anticipate disbursing the full $40,000 to students in need before the end of September,” Sbriscia said.

Typically, students request help paying for basic needs, such as food, rent, utilities, childcare and transportation.

“Relief Fund dollars are making it possible for HCC students throughout our region to achieve their educational goals,” Sbriscia said. “I’m so grateful to the Community Foundation for enabling us to respond to our students with good news. This funding tells them, your community is here for you, and we’re committed to your success.”

Taxpayers Given Relief with Retirement-plan Loans, Distributions

By Contributor
Accounting and Tax Planning Special Coverage

By All Accounts

By Jim Moran CPA, MST

Jim Moran CPA, MST

Jim Moran CPA, MST

The Coronavirus Aid, Relief, and Economic Security (CARES) Act has provided taxpayers affected by COVID-19 with some relief in the area of retirement-plan distributions and loans.

A coronavirus-related distribution is allowed by a qualified individual from an eligible retirement plan made from Jan. 1, 2020 to December 31, 2020, up to an aggregate amount of $100,000. A qualified individual must meet one of these criteria:

• Diagnosed with the virus SARS-CoV-2 or with the coronavirus disease 2019 (COVID-19) by a test approved by the Centers of Disease Control and Prevention (CDC);

• Spouse or dependent is diagnosed with SARS-CoV-2 or COVID-19 by a test approved by the CDC;

• Experienced adverse financial consequences as a result of being quarantined, furloughed, laid off, having work hours reduced, or being unable to work due to lack of childcare due to SARS-CoV-2 or COVID-19; or

• Experienced adverse financial consequences as a result of closing or reducing hours of a business that is owned or operated by the individual due to the SARS-CoV-2 or COVID-19.

An ‘eligible retirement plan’ is defined as the type of plan that is eligible to accept tax-free rollovers. It includes 401(k) plans, 403(b) plans, governmental 457 plans, and IRAs (including SEP-IRAs and SIMPLE-IRAs). It does not include non-governmental 457(b) plans. The $100,000 withdrawal limit applies in aggregate to all plans maintained by the taxpayers.

For individuals who are under age 59½, the act waives the 10% early-withdrawal penalty tax. Although the 10% penalty will be waived, any potential income taxes associated with the retirement plan or IRA withdrawal will still be assessed. The act also suspends the 20% tax-withholding requirements that may apply to an early distribution from a 401(k) or other workplace retirement plan.

“Your tax liability owed to the IRS at the end of the year may be higher than expected if you choose not to withhold the suggested 20%.”

Just keep in mind, your tax liability owed to the IRS at the end of the year may be higher than expected if you choose not to withhold the suggested 20%.

When it comes to paying the resulting tax liability incurred due to the coronavirus-related distributions, the CARES Act allows you a couple of options: spread the taxes owed over three years, or pay the taxes owed on your 2020 tax return if your income (and, thus, your tax rate) is much lower in that year.

Taxpayers may also repay the coronavirus-related distributions to an eligible retirement plan as long as the repayment is done within three years after the date the distribution was received. If the taxpayer does repay the coronavirus-related distribution in the three-year time period, it will be treated as a direct trustee-to-trustee transfer so there will be no federal tax on the distribution. This may mean an amended return will have to be filed to claim a refund attributable to the tax that was paid on the distribution amount that was included in income for those tax years.

Retirement-plan Loans

Loans from eligible retirement plans up to $100,000 to a qualified individual are available for any loans taken out during the six-month period from March 27, 2020 to Sept. 23, 2020. This is up from the previously allowed amount of $50,000.

Participants must repay standard retirement-account loans within five years. The CARES Act allows borrowers to forgo repayment during 2020. The five-year repayment clock begins in 2021. The loan will, however, continue to accrue interest during 2020.

If you have an existing loan outstanding from a qualified individual plan on or after March 27, 2020, and any repayment on the loan is due from March 27, 2020 to Dec. 31, 2020, the due date for any loan repayments are delayed for up to one year.

Employers may amend their plans for the above hardship provisions to apply no later than the last day of the plan year that begins on or after Jan. 1, 2022 (Dec. 31, 2022 for a calendar-year-end plan). An additional two-year window is allowed for governmental plans; however, IRS Notice 2020-51 clarifies that employers can choose whether to implement these coronavirus-related distribution and loan rules, and notes that qualified individuals can claim the tax benefits of coronavirus-related distribution rules even if plan provisions are not yet amended.

Administrators can rely on an individual’s certification that the individual is a qualified individual (and provides a sample certification), but also notes that an individual must actually be a qualified individual in order to obtain favorable tax treatment. IRS Notice 2020-50 provides employers a safe-harbor procedure for implementing the suspension of loan repayments otherwise due through the end of 2020, but notes there may be other reasonable ways to administer these rules.

Please note that the loan provisions apply only to qualified plans such as 401(k), 403(b), and governmental 457 plans; loans may not be taken from IRAs.

Each retirement plan’s rules and requirements supersede the CARES Act. In addition, it is important to remember that not all retirement-plan sponsors allow loans. Before taking out any loan, it is important to check that your employer’s plan adopts these provisions.

Suspension of RMDs

The CARES Act has suspended required minimum distributions (RMDs) for 2020. Individuals over age 70½ (for those born prior to July 1, 1949) or 72 (for those born after July 1, 1949) were required to take a minimum distribution from their tax-deferred retirement accounts.

Most non-spousal heirs who inherited tax-deferred accounts were also required to take an annual RMD. Under the CARES Act, RMDs from qualified employer retirement plans such as 401(k), 403(b), and 457 plans, will be waived. Even those individuals not affected by the coronavirus can waive the RMDs.

For individuals who have already taken their 2020 RMD, the CARES Act allows you to put it back into your retirement account. IRS Notice 2020-51 qualifies the distribution as an eligible rollover distribution if repaid in full by Aug. 31, 2020.

Jim Moran is a tax manager at Melanson, advising clients on individual and corporate tax matters; [email protected]

As an Economic Shutdown Deepens, Some Relief Emerges

By
Coronavirus Sections Special Coverage

A New Reality

The massive federal stimulus that took shape last week brought some clarity to how the government would address troubling impact of COVID-19 and the large-scale economic shutdown that has emerged in response to this public-health crisis. Other efforts on the state and local levels aim to help businesses and families struggling with job loss and the suspension of livelihoods. Of course, the true relief will come when this viral threat subsides and businesses ramp back up. But no one knows exactly when that will be.

The news came in quickly — and landed hard.

Last Thursday morning, the Department of Labor issued its first unemployment-claims report since much of the country began implementing, in various ways and at various speeds, some form of economic shutdown to slow the spread of coronavirus and the respiratory illness it causes, known as COVID-19.

The news was not good. The number of Americans filing for unemployment benefits skyrocketed to a record-breaking 3.28 million for the week ended March 21 — nearly doubling expectations of 1.64 million claims. The previous record was 695,000 claims filed during October 1982.

It’s a big problem — and sometimes, big problems require big solutions. Which is why lawmakers in Washington spent much of last week hammering out a $2 trillion stimulus package aimed at helping families facing sudden job loss, small-business owners trying to survive, and entire battered industries ride out what is increasingly looking like a severe disruption to America’s economic way of life.

“Business owners … will be receiving a lifeline from the federal government that is unprecedented in scope, speed, and breadth,” Scott Foster, a partner with Bulkley Richardson, said the morning after details of the stimulus became known.

Among its many provisions, the Keeping American Workers Paid and Employed Act appears to apply to every for-profit business with fewer than 500 employees, including sole proprietors, Foster noted. The act would allow these businesses to obtain a loan — at 4% interest with a 10-year repayment term — to cover payroll costs, including healthcare premiums and paid time off, rent, utilities, mortgage payments (interest, not principal), and interest on other pre-existing loans for any eight-week period falling between Feb. 15 and June 30.

“To summarize, if you are a business and are willing to keep your employees on the payroll, pay your rent or mortgage, and stay in business, the federal government is prepared to pay your rent, your utilities, and your payroll — for employees making under $100,000 annually — for eight weeks, and the payment is tax-free,” Foster said. “It sounds too good to be true, but the public policy is sound — the easiest and best way to get financial support to the most Americans is through their employers.”

Unlike most other loans, this one will be forgiven in an amount equal to the sum of payroll costs, payments of interest on any covered mortgage, payments on any covered rent obligations, and covered utility payments. And to encourage businesses to retain their employees, the amount to be forgiven would be reduced if the business reduces its workforce.

“Business owners … will be receiving a lifeline from the federal government that is unprecedented in scope, speed, and breadth.”

Families will receive a simpler but shorter-term fix — a tax rebate totaling $1,200 for most adults and $500 for each child — which will be distributed as checks in the coming weeks. Meanwhile, states will get help in the form of a $150 billion grant fund, to be distributed proportional to population size, with a minimum of $1.25 billion for states with the smallest populations.

For many of the impacted, it’s a start, at a time of unprecedented anxiety — after all, the country has never voluntarily shut down activity on a massive scale due to a health threat, or for any other reason. This issue of BusinessWest details many of the ways businesses and families are coping, and plenty of advice from local professionals on the best ways to do so. It’s a story that changes by the day, but read on for a snapshot of where we are now.

Targeted Assistance

For many, the COVID-19 threat really hit home the morning — March 23, to be exact — when Gov. Charlie Baker issued an emergency order requiring all businesses and organizations that do not provide “COVID-19 essential services” to close their physical workplaces and facilities to workers, customers, and the public at least until April 7, while continuing to operate remotely when possible.

Those ‘essential’ businesses include healthcare and public health; law enforcement, public safety, and first responders; food and agriculture; critical manufacturing; transportation; energy; water and wastewater; public works; communications and information technology; financial services; defense industry base; chemical manufacturing and hazardous materials; and news media.

Everyone else is being asked to work at home, and most area companies were already moving in that direction before Baker’s mandate. The Springfield Regional Chamber polled its members last week about how the order impacted their operations. Almost two-thirds — 62% — said their employees were already working remotely, 27% said they began remote work after March 23, and 11% said they temporarily closed all operations because they cannot work remotely.

The threat of a longer shutdown looms, and may be foreshadowed by the governor’s order last week to keep all schools and most childcare programs closed at least until May 4, while requesting that educators gear up for the long haul by developing and enhancing online-learning capabilities.

“It sounds too good to be true, but the public policy is sound — the easiest and best way to get financial support to the most Americans is through their employers.”

In the meantime, a number of relief efforts have popped up at the federal, state, and local levels. For example, the U.S. Small Business Administration (SBA) will offer low-interest federal Economic Injury Disaster Loans for working capital to Massachusetts small businesses suffering substantial economic injury as a result of COVID-19. Applicants may apply online at disasterloan.sba.gov/ela.

This week, the Baker-Polito administration also announced economic support for Massachusetts small businesses with the Small Business Recovery Loan Fund, a $10 million fund that will provide emergency capital up to $75,000 to Massachusetts-based businesses impacted by COVID-19 with under 50 full- and part-time employees, including nonprofits. The application is at empoweringsmallbusiness.org.

Meanwhile, Common Capital offers a Fast Track Loan Program to address the needs of local businesses that need quick access to capital. Applicants seeking funding from the program to help mitigate the effects of the COVID-19 pandemic can contact Kim Gaughan, loan fund manager, at (413) 233-1684 or [email protected] for more information.

The Baker-Polito administration also announced steps last week to keep vulnerable families in their homes, preserve the health and safety of low-income renters and homeowners, and prevent homelessness due to reduced or lost income. Specifically, the Department of Housing and Community Development (DHCD) will temporarily suspend terminations of federal and state rental vouchers under its purview, while MassHousing is transferring $5 million to the DHCD for a COVID-19 Rental Assistance for Families in Transition fund to assist families facing rent insecurity.

In addition, the state Division of Banks has issued new guidance to financial institutions and lenders urging them to provide relief for borrowers — several banks have already committed to do so — and will advocate for a 60-day stay on behalf of all homeowners facing imminent foreclosure on their homes. Finally, affordable-housing operators are being urged to suspend non-essential evictions for loss of income or employment circumstances resulting in a tenant’s inability to make rent.

Meanwhile, Massachusetts will delay the collection of sales tax, meals tax, and room-occupancy taxes in the restaurant and hospitality sector for up to three months, while waiving all penalties and interest. And, of course, the IRS has informed all taxpayers that this year’s filing deadline has been moved forward three months to July 15.

Nonprofits are being squeezed by the crisis as well. In response, the Community Foundation of Western Massachusetts (CFWM) established the COVID-19 Response Fund for the Pioneer Valley with a lead gift of $1 million from MassMutual and contributions from a number of area businesses. The fund will provide resources to Pioneer Valley nonprofits serving populations most impacted by the crisis, such as the elderly, those without stable housing, families needing food, and those with health vulnerabilities. To make a gift, visit communityfoundation.org/coronavirus-donations or e-mail [email protected].

Meanwhile, Berkshire United Way and Berkshire Taconic Community Foundation have established the COVID-19 Emergency Response Fund for Berkshire County to rapidly deploy resources to community-based organizations as they respond to the impact of the coronavirus in Berkshire County. Numerous corporate funders have already emerged. To donate, visit berkshireunitedway.org/donate. Nonprofits can request funds at berkshireunitedway.org.

Finally, to help individuals in need, the United Way of Pioneer Valley established the COVID-19 Recovery and Relief Fund to provide aid and resources to those affected by the current public-health emergency. Funds collected will help families and individuals impacted by the pandemic to meet their basic, childcare, housing and financial needs. Visit www.uwpv.org for more information.

Hunkering Down

Resources such as these are critical because there’s really no telling when the region and country can return to some semblance of economic normalcy. Judging by what the medical community knows about how aggressively coronavirus spreads, the health costs of emerging from this collective cocoon too soon are too great — the healthcare system would simply be overrun. That’s why ‘flattening the curve; has become the watchword of the day.

Unfortunately, many businesses feel overrun in a different way. The Springfield Regional Chamber conducted a different poll recently, asking members what level of impact they expect the COVID-19 crisis have on their business.

More than four-fifths have major concerns; 34% say the crisis may put them out of business, while 47% say it will significantly impact their financials. Another 15% say they’ll be impacted financially but expect to weather the storm, while 4% say it’s too early to know.

In many ways, it’s too early to predict many things related to COVID-19 and its impact. Meanwhile, a nation increasingly shelters in place, seeking relief and solutions where they can find them, and hoping for the best.

Joseph Bednar can be reached at [email protected]

The Impact of the Small Business Reorganization Act

By
Law

A New Type of Relief

By Rebecca Mercieri Rivaux, Esq.

Rebecca Mercieri Rivaux

Small-business owners will soon have a more affordable option to reorganize their companies. In February 2020, the Small Business Reorganization Act (SBRA) will go into effect, providing a new type of relief to small-business debtors.

The SBRA creates a new subchapter within Chapter 11 of the U.S. Bankruptcy Code. While Chapter 11 bankruptcy generally provides for business reorganization (usually involving a corporation or partnership), it can be an unappealing option for many small-business debtors, due to complex procedural requirements and high legal and administrative costs. The SBRA will expedite reorganization for small-business debtors by streamlining the burdensome requirements of Chapter 11 bankruptcy.

The SBRA is, in fact, very comparable to a Chapter 13 bankruptcy, the kind used by individuals. Just as with Chapter 13 filings for individuals, an SBRA debtor can expect to have a trustee appointed by the bankruptcy court. The court-appointed trustee will aid the small business in developing a reorganization plan, but is not likely to be involved in any operational aspects of the business. This essentially allows the debtor to remain in possession and control of their own business during the bankruptcy process. The trustee is responsible for disbursing payments to creditors under the reorganization plan.

In order to take advantage of the new SBRA, a debtor must first qualify as a small business. To qualify, the debtor must be a person or entity engaged in a commercial or business activity. If such a business has secured and unsecured debt totaling less than $2,725,625, the business may propose a reorganization plan under the SBRA — so long as they use net income to repay creditors.

This is in keeping with the general practices of Chapter 11, where a debtor usually proposes a plan of reorganization to keep its business in existence and pay creditors over time.

SBRA debtors must produce a copy of the business’ most recent balance sheet, a statement of operations, a cash-flow statement, and a federal income — or file a sworn statement that such documents do not exist.

The SBRA allows the small-business debtor to repay its creditors within a payment plan of three to five years, as the bankruptcy court determines. The SBRA also allows small-business debtors a greater opportunity to retain their ownership interests in their business, even when claims have not been repaid in full (in contrast with a typical Chapter 11 bankruptcy, where a shareholder cannot retain equity in the business unless creditors are paid in full).

To qualify, the debtor must be a person or entity engaged in a commercial or business activity. If such a business has secured and unsecured debt totaling less than $2,725,625, the business may propose a reorganization plan under the SBRA — so long as they use net income to repay creditors.

Another significant benefit to the SBRA is a specialized restructuring strategy offered to individual debtors. An individual who qualifies as a small-business debtor can modify the mortgage on his or her principal residence, provided that the mortgage loan was not used to acquire the real property, but was used primarily in connection with the debtor’s business — such as an individual who is borrowing against the equity in their home for the purpose of supporting their business. This individual small-business debtor would then be able to reduce the loan to the value of the secured claim, propose a lower interest rate, or extend the maturity date of the loan. Once the small-business debtor has completed all payments to creditors, a discharge is granted.  

Under the SBRA, the only excluded activity for the small business debtor is operating “single-asset real estate,” a term that describes a debtor who receives substantially all of its gross income from the operation of a single real property.

Despite this restriction, for many small business debtors, the SBRA will offer relief and a realistic means to reorganize and restructure their businesses under the Bankruptcy Code.

Rebecca Mercieri Rivaux is an associate with Bacon Wilson, P.C., and a member of the firm’s bankruptcy and business/corporate practice groups; [email protected]

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