Hospitals ‘unfile’ bankruptcy to get federal aid

Companies in bankruptcy are not eligible to apply for Paycheck Protection Program loans made available under the Coronavirus Aid, Relief and Economic Security Act, but bankrupt organizations have figured out a way to still receive the loans, according to Bloomberg Law

Some companies have “unfiled” for bankruptcy, arranged to receive PPP funds and then refiled their bankruptcy case, according to the report. At least three hospitals have used this process. 

Lockport, N.Y.-based Eastern Niagara Hospital refiled for Chapter 11 bankruptcy July 8, two weeks after its previous bankruptcy case was dismissed. The bankruptcy court dismissed the initial case June 24 at the request of the hospital to allow it to apply for a PPP loan. 

Faith Community Health System, a single-hospital system based in Jacksboro, Texas, refiled for bankruptcy June 11, about three weeks after its previous bankruptcy case was dismissed. The health system, part of the Jack County (Texas) Hospital District, first entered Chapter 9 bankruptcy — a bankruptcy proceeding that offers distressed municipalities protection from creditors while a repayment plan is negotiated — in February. The bankruptcy court dismissed the case May 26 at the request of the health system. The health system asked the court to dismiss the case to allow it to apply for a PPP loan through a Small Business Association lender.

Calais (Maine) Regional Hospital asked a federal judge in July to dismiss its Chapter 11 case so it can seek at least $1.8 million in PPP funding. If the hospital is allowed to temporarily exit bankruptcy, a bank has agreed to extend a PPP loan to the hospital, according to Bangor Daily News

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