SBRA – Helping Individuals with Business Debt
What is the SBRA? It is the Small Business Reorganization Act of 2019 which was recently signed into law by President Trump. The law passed in August 2019. It will take effect on February 22, 2020. SBRA creates a new subchapter in the United States Code related to Chapter 11 bankruptcy. As a result, small business owners will have more options with regard to business debt relief.
Changes for Small Business Owners
These changes apply to small business owners with business debts less than $2,725,625. Business debts of corporations are not eligible for these new protections. An important distinction here is that the new law helps individual business owners who have personal liabilities related to their business’s debts. This debt must be at least 50 percent of the individual’s debts. This means that up to 50 percent of the owner’s debts may be designated as personal. Personal debt includes items such as medical and credit card debt.
SBRA is officially codified into law in Subchapter V of the Chapter 11 code. Subchapter V creates the position of a special case trustee. The trustee acts as an intermediary between the debtor and his or her creditors. As a result, the trustee position reduces expenses associated with filing for Chapter 11 bankruptcy.
Looks Like a Chapter 13 Bankruptcy
The modifications SBRA brings to Chapter 11 make this type of bankruptcy look more like Chapter 13 bankruptcy. Chapter 13 is a personal bankruptcy filing that involves an approved plan to pay back creditors for individuals with consumer or business debt that is less than ~$1.2 million. For example, one provision of SBRA mandates that filers, as Small Business cases under Subchapter V, must propose a reorganization plan within 90 days of the original petition for relief. This is a substantially faster track than the ordinary Chapter 11 case. Additionally under SBRA, the individual filing Chapter 11 must commit 100% of his/her disposable income to the business for a period of three to five years. The filer can earmark some income for qualified exceptions. This is different than prior individual Chapter 11 cases.
Another change to Chapter 11 that moves the classification closer to Chapter 13 is the opportunity for the debtor to file a more pro forma reorganization plan, which makes it more cost-effective and affordable for the debtor. The court may also approve the proposed plan without all of the supporting evidence required in the more complex chapter 11 disclosures statements that was previously required, as long as it is deemed fair and equitable.
The latest changes to Chapter 11 bankruptcy have ramifications for creditors and small business debtors alike. Starting on February 22, 2020, individuals with financial liabilities tied up in their small business will enjoy a more streamlined process for filing for Chapter 11 bankruptcy. If this is what you need, please reach out to Lucid Law to begin your free consultation.