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How the Small Business Reorganization Act of 2019 Makes Chapter 11 Easier

Los Angeles bankruptcy lawyers help small business debtors utilize a new procedure

Small business debtors have for decades found it difficult to reorganize efficiently under Chapter 11, a process that can be cumbersome and expensive. As of February 22, 2020, however, the new Small Business Reorganization Act (SBRA) adds a streamlined procedure — known as Subchapter V —that makes reorganization a more cost-effective and manageable option for many small businesses.

At the Law Offices of Michael Jay Berger in Los Angeles, my team of small business bankruptcy attorneys helps companies in distress utilize the newest bankruptcy provisions to emerge from debt into financial health. I am fully familiar with the new Subchapter V provisions and stand ready to apply my decades of experience to help your small business successfully reorganize.

New Subchapter V now applies solely to small businesses

Subchapter V creates several new rules and procedures that are available only to small businesses. To qualify for Subchapter V, the debtor must both:

  • Be a person or entity engaged in commercial or business activity
  • Have aggregate secured and unsecured debts of no more than $2,725,625.

The debtor need not remain engaged in business activity after filing bankruptcy. However, at least 50 percent of the debt must have arisen from business activity. For example, a business owner with $600,000 in business debt and $400,000 in consumer debt is eligible for Subchapter V.

Key provisions of the new law create a simplified process

Among the SBRA’s numerous changes to the small business bankruptcy process are the following:

  • Only the debtor can propose a reorganization plan. It must be done within 90 days of filing the bankruptcy petition unless the court approves an extension of time.
  • A standing trustee will be appointed to oversee the Subchapter V case, similar to the way a Chapter 13 trustee functions.
  • The Subchapter V standing trustee acts as fiduciary for creditors but will not operate the debtor’s business.
  • A creditors committee will not be formed.
  • Equity holders of the business can retain their interests without the need to pay the debtor’s creditors in full.
  • A residential mortgage loan securing the debtor’s principal residence can be modified if the proceeds were used for the small business.
  • The debtor can pay administrative expenses over the term of the plan rather than having to pay them in a lump sum on the plan’s effective date.

These changes combine to make Subchapter V a much more debtor-friendly  process than a typical corporate Chapter 11 case.

Subchapter V offers discharge after three to five years

The Subchapter V plan must detail how the business will pay back its creditors within a three-to-five-year span. All of the debtor’s projected disposable income must be directed toward making payments. If the debtor makes all required payments within the first three years of the repayment plan, the bankruptcy court must grant a discharge. With rare exception, the discharge relieves the debtor of personal liability for all debts in the plan.

Talk to our Los Angeles attorneys about using Subchapter V to help your business through financial straits

If you are a small business owner struggling to stay afloat, Chapter 11 is a much more accessible option than it was in the past. My Beverly Hills firm helps businesses like yours dealing with the weight of excessive debt. I’ll work tirelessly to get your company through these challenges so that it can return to financial vitality. Call the Law Offices of Michael Jay Berger today 310-271-6223 or contact me online to schedule a free initial consultation.

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