New Law Provides Bankruptcy Relief for Small Businesses
A Chapter 11 bankruptcy allows individuals and businesses to “reorganize,” rather than liquidate, their assets in order to pay creditors. For small business debtors, however, filing for Chapter 11 can often be prolonged and costly. To address these issues, Congress passed the Small Business Reorganization Act of 2019 (“SBRA” or the “Act”), which went into effect on February 19, 2020. The SBRA provides an efficient and cost-effective Chapter 11 bankruptcy option for individuals and small businesses. Given the widespread economic impact of COVID-19, this could be a very valuable tool for those individuals and businesses that qualify.
The Act applies to individuals and businesses when themajority of their debt arises from commercial and business activities, with non-contingent, liquidated, secured and unsecured debt in aggregate of not more than $2,725,625 –although the Congressional Stimulus Package includes a temporary increase of debt limit eligibility to $7.5 million for one year. The SBRA does not apply to single asset real estate debtors, which are those who primarily own or operate real property.
A mandatory status conference will occur 60 days after filing the bankruptcy petition, and a trustee will be appointed to assist the debtor(s) and creditor(s) in confirming a plan of reorganization and to supervise the case.
The SBRA also streamlines the process of preparing a plan of reorganization, which is intended to facilitate confirmation of the plan by the Court. The repayment plan, which can only be filed by the debtor, must be filed within 90 days of filing bankruptcy. The plan has comparatively fewer requirements and the debtor is not required to file a disclosure statement, which informs creditors of the contents of the plan. Further, the plan can be approved by the Bankruptcy Court without creditor approval, and the timeline for payment of debts can beabbreviated to three years.
These notable provisions in the SBRA, among others, have the potential to benefit small business and individual debtorswishing to reorganize under Chapter 11 by paving the way for shorter and cost-effective bankruptcies. Please contact Kelly Tran with Small Law PC if you have any questions regarding the Small Business Reorganization Act of 2019 or if you are considering filing for bankruptcy.