A New Small Business Bankruptcy Law

Posted by Ian Smith | Jul 16, 2020 | 0 Comments

A New Small Business Bankruptcy Law Takes Effect, Just in Time.

Chapter 11 bankruptcy is by far the most expensive to file. It has been prohibitively expensive for smaller firms in the past. Under the Small Business Reorganization Act, which passed in February of 2020, congress streamlined the process for small businesses hoping to use bankruptcy as a means to a fresh start. They created a new subchapter to Chapter 11 bankruptcy filings, called Subchapter V. They capped this stream-lined process for companies that were holding less that $2.7 million in debt.

More recently, the Coronavirus Aid, Relief and Economic Security Act (CARES ACT) was passed on March 27th of 2020 to address the economic fall out from the Covid-19 pandemic. In the CARES ACT congress extended the cap from $2.7 million to $7.5 million in debt. This will allow more small businesses to utilize the new Subchapter V filing option.

So what does Subchapter V offer for small businesses?

1) The new subchapter V makes it more likely that you will be able to retain control over your business as you go through bankruptcy.

2) Only the debtors can propose the payment plans under a Subchapter V filing. Additionally, a court can approve a plan even if all the creditors oppose the plan. In chapter 11s creditors can have a big influence on the confirmation of a plan. This is significant because it significantly streamlines the debtor's ability to get the restructuring underway.

3) Creditor committees aren't mandatory. This can dramatically reduce fees associated with filing and make it cheaper for small businesses to file.

All these considerations make the subchapter V filing an attractive alternative to the costly and time intensive traditional Chapter 11 process.

About the Author

Ian Smith

Ian Smith was born and raised in Jackson, Wyoming. His parents were NOLS instructors so his childhood was filled with outdoor adventuring across beautiful Wyoming. He spends his free time in the outdoors; fishing, hunting with his father, skiing, mountain biking, and camping. Ian spent his twentie...

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