SBA Checks Whether Bankrupt Debtors Can Take PPP Loans Fox Rothschild LLP

Until the US Small Business Administration changes its position and rules, bankrupt debtors still cannot get PPP loans.

Indeed, under the Consolidated Appropriations Act 2021 (the law) signed by President Trump on December 27, 2020, none of the bankruptcy provisions are effective until the SBA authorizes them.

The law explains in detail how bankruptcy debtors, or trustees acting on their behalf, can obtain Paycheck Protection Program (P3) loans.

But at the end of Section 320 of the act, Congress declares that the bankruptcy provisions allowing bankrupt debtors to obtain PPP loans do not take effect until the SBA submits a written determination to the director of the executive office. of the United States Trustees that any bankruptcy the debtor or the trustee licensed to carry on the debtor’s business “would be eligible for a loan under paragraphs (36) and (37) of Section 7 (a) of the Small Business Act, “referring, respectively, to the original paycheck Protection Program Loans and Paycheck Protection Program Second Draw Loans.

In other words, the SBA still has the regulatory authority associated with the second-run PPP, just as it did with the original PPP.

The SBA has made its position clear: bankrupt debtors are not eligible to receive PPP loans. Congress specifically added the PPP program to Section 7 (a) of the Small Business Act, which never allowed bankrupt debtors to apply for 7 (a) loans or an SBA loan for that matter. The fourth interim final rule that the SBA made when implementing the PPP was that bankruptcy debtors are specifically ineligible for the PPP. In addition, the Fifth and Eleventh Circuits confirmed the power of the SBA to prohibit bankrupt debtors from obtaining PPP loans.

And now Congress has specifically reaffirmed the power of the SBA by declaring that the bankruptcy law provisions relating to the ability of bankrupt debtors to obtain PPP loans do not come into effect until the SBA does. has not provided written authorization to the Office of the Syndic.

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Paul Cox

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