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Chapter 11 Debtors in Florida May Now Be Eligible for PPP Loans, Provided They Have Cleared One Key Hurdle

A reversal in course by a federal agency could provide several businesses here in Florida with an important lifeline when it comes to getting the additional funds they need. Going forward, many Chapter 11 bankruptcy debtors may now be eligible for Paycheck Protection Program (PPP) loans. Whether or not your business is considering applying for a PPP loan, you should seek out advice from an experienced South Florida bankruptcy lawyer before making any crucial decisions in the process of contemplating (and potentially pursuing) bankruptcy.

Until very recently, Florida bankruptcy debtors, including Chapter 11 filers, were cut off from PPP loan funds. That was because of a U.S. Small Business Administration (SBA) standard and the 11th Circuit Court of Appeals’ ruling in the bankruptcy case of a Pinellas County medical office.

The debtor, which was a “physician-owned and -operated outpatient imaging, diagnostic, and interventional radiology center” located in St. Petersburg, filed for Chapter 11 bankruptcy in 2019.

A year later, after the passage of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) and the creation of the PPP, the center applied for a PPP loan, even though its Chapter 11 bankruptcy case was still pending.

The SBA, which Congress tasked with overseeing the PPP loan program, barred bankruptcy debtors, including Chapter 11 debtors, from eligibility for PPP loans at that time. The 11th Circuit upheld that denial, ruling that the SBA’s interpretation of the CARES Act was entirely reasonable and not arbitrary.

That meant Chapter 11 bankruptcy debtors in Florida, Alabama, and Georgia were ineligible for PPP loans.

Then, in April 2021, that changed. It started after the National Association of Consumer Bankruptcy Attorneys sent a letter to the new head of the SBA, asking her agency to revisit the policy and clear the way for certain bankruptcy debtors to obtain PPP loans.

SBA Explains the Limitation on PPP Loan Eligibility

The administrator agreed. On April 6, the SBA released a revised guidance document. That version of “Paycheck Protection Program Loans Frequently Asked Questions (FAQs)” clarified, and in places like Florida modified, the PPP loan eligibility status of many bankruptcy filers. The new FAQ guidance says, among other things, that Chapter 11 filers become eligible to receive PPP loans once the judges in their bankruptcy cases approve their reorganization plans.

The change will not open the door to PPP loan eligibility for all bankruptcy debtors, though. For example, the radiology center in St. Petersburg would remain ineligible for a PPP loan because it applied for its PPP loan before it obtained a confirmed reorganization plan. For lots of other Chapter 11 filers, though, the change by the SBA means going from being ineligible to eligible for the loans.

Many considerations go into making a decision about filing for bankruptcy. PPP loan eligibility is just one more layer added on. Any of these concerns may be critical for your business, so you need a legal advisor who has all the knowledge and answers you require. Count on the Chapter 11 bankruptcy attorneys at Stok Kon + Braverman to provide that sort of reliable advice and powerful advocacy for your business.

Contact us online or by calling (954) 237-1777 to schedule your consultation.

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