The CARES act with its PPP and EIDL loans has offered some relief, but the recently enacted Small Business Reorganization Act (“SBRA”) made substantial changes to the bankruptcy code to allow small businesses to restructure their business, reduce or eliminate debt and emerge as a successful enterprise.
This new law amends Chapter 11 of the US Bankruptcy Code by creating Subchapter V, an alternative route for bankruptcy cases that small business debtors can elect to apply. Subchapter V gives the debtor control over his business after declaring bankruptcy, empowers the debtor to design and control the repayment plan, streamlines the entire bankruptcy process, and grants the debtor a trustee that is an ally, rather than an adversary. Subchapter V’s procedural provisions establish a smarter, faster, and cheaper bankruptcy process that just might save your business.
Chapter 11 reorganization is a form of bankruptcy where the debtor is given the opportunity to restructure its debts and form a new payment plan to creditors. Generally, Chapter 11 reorganization seeks to help the debtor get out from under unbearable debts and create a plan to start over without liquidating the company. Chapter 11 bankruptcy has traditionally been a difficult path or small businsesses because it can be complex, expensive, and lengthy. As a result, the majority of successful Chapter 11 cases had been brought by large corporations. However, with the passage of the Small Business Debt Reorganization Act, Subchapter V makes Chapter 11 bankruptcy smarter, faster, and cheaper, allowing small businesses to reorganize under Chapter 11 and potentially save their businesses. If for some reason they choose not to elect Subchapter V treatment, small business debtors can still will follow the established, more cumbersome, procedures of Chapter 11 reorganization. But once Subchapter V is elected, the small business friendly provisions will override the standard Chapter 11 rules and govern the bankruptcy.