I previously wrote about the Small Business Reorganization Act of 2019, also known as SBRA.  Subchapter V, as the SBRA has become known, was created to help small business deal with financial distress by streamlining the process. Also, it make Chapter 11 more economical and less complex so that it is more accessible for individuals with high dollar amounts of business debt.  It was signed into law before the outbreak of the COVID pandemic, going into effect on February 20, 2020.  However, it has proved invaluable to the small business community which has been hit hard by the pandemic. In other words, Subchapter V provides debt relief for small businesses especially now in a time of need.

Debt Limitations & COVID

As Subchapter V was established under Chapter 11 of the Bankruptcy Code to streamline the process while making it more affordable. To qualify for a Subchapter V, an individual must have primarily  business debt, and the total debt ,must be less than $2,725,625[1]. In light of the pandemic, the debt limit was raised to $7,500,000 under the CARES Act. The debt limit was raised to help small businesses, and their stakeholders, get through the pandemic. Originally set to expire in March 2021, Congress has extended it for another year. Therefore, if you qualify under the raised debt ceiling, you have less than a year to act. Again, you have only to March 2022 if you want to file using the $7,500,000 debt level.

Benefits of Subchapter V

One of the benefits is that Subchapter V is more like a Chapter 13 even though it is part of Chapter 11 of the Bankruptcy Code. For example, the debtor can pay back its debt over 3-5 years. In a usual Chapter 11 bankruptcy case, all administrative costs are paid at the plan confirmation. With a Subchapter V, these expenses can be paid over the life of the plan. Again, making it easier for a small business owner to make payments. Another benefit is that, under Subchapter V, a debtor 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. There are some other technical benefits as well such as control of operations and the protection of personal assets.

Small Business Owner – Call Me

It may seem odd but personal bankruptcy filings are at all-time lows. This is because of stimulus money and moratoriums on forecloses, evictions, and the like. On the other hand, business bankruptcies are increasing – with more on the horizon. Therefore, if your small business is suffering from financial hardship, give me a call. You may have options to weather the storm and give your business a financial fresh start. Subchapter V is one such option for debt relief for small businesses.

[1] The amount is set to adjusted annually