Document Type

Research Memorandum

Publication Date




In response to the economic fallout of the global COVID-19 pandemic, Congress passed the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), which makes government-guaranteed loans available to qualified small businesses through the Paycheck Protection Program (“PPP”). The PPP was not created as a standalone program but was added to the existing section 7(a) program, which subjects the PPP to existing conditions and regulations, as well as existing Small Business Administration (the “SBA”) authority. The CARES Act expressly gives the SBA “[e]mergency rulemaking authority” to “issue regulations” carrying out the PPP. And it provides that the SBA “may guarantee covered loans under the same terms, conditions, and processes” as section 7(a). The use of the permissive word “may” vests the SBA with discretionary authority. Subsequently, the SBA decided, when implementing the PPP, that bankruptcy debtors would be explicitly ineligible for the PPP loans resulting in a swarm of litigation as to whether the SBA exceeded its statutory authority. This has led to conflicting decisions around the country.

On December 27, 2020, President Trump signed the Consolidated Appropriations Act, 2021 (the “CAA”), which contains provisions that provide some debtors with access to the program on the condition that the SBA provide its written consent. This recent legislation seems to have cleared up the confusion regarding a bankruptcy debtor’s ability to receive PPP loans, at least to courts that appear to agree that Congress intended to bestow authority on the SBA regarding the regulation of the PPP. Yet, this issue has continued to be a source of frustration for bankruptcy debtors.

This memorandum discusses the establishment of the PPP in the CARES Act, the amendments to the PPP through the passing of the CAA, and how courts have addressed the issue of the SBA’s authority under these new amendments implemented by the CAA. Part I of this memorandum examines the CARES Act, Part II analyzes the amendments to the PPP and its accessibility to bankruptcy debtors under the CAA, and Part III reviews how some courts have applied the CAA to chapter 11 bankruptcy debtors seeking relief.


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