Until recently, small business owners often encountered difficulties when seeking debt relief under Chapter 11 bankruptcy (also called reorganization.) These difficulties would typically include high additional costs, as well as various procedural challenges and roadblocks. However, in 2019, the federal government passed the Small Business Reorganization Act or SBRA, which amended Chapter 11 to make the bankruptcy process easier for small business owners.
Known as subchapter 5, this section of the bankruptcy code went into effect in February 2020, and it enables small businesses to restructure without going out of business. If you’re struggling with economic losses and mounting debt – whether because of COVID-19 or another reason – our Utah SBRA bankruptcy lawyers are here to help you find a path forward. With a robust multidisciplinary practice that includes both business law and bankruptcy, Pearson Butler has the resources and experience to guide you through the process of debt relief.
Contact us today at (800) 265-2314 or submit our online contact form to get started with a free consultation.
What Does the SBRA Do?
Chapter 11 bankruptcy is essentially a restructuring of the company’s debts and assets that allows the company to continue running, while still satisfying the company’s creditors. In the past, creating a reorganization plan was a costly endeavor for small businesses – but with the SBRA, the process has become much more straightforward.
The SBRA makes the following changes to Chapter 11:
- Enabling the appointment of a trustee. Many companies undergoing Chapter 11 have to appoint a trustee who will ensure that their reorganized payment schedule is met. Under subchapter 5, a local trustee will be assigned to your business.
- Removing the committee requirement and other procedural roadblocks. If you qualify for subchapter 5, you no longer need to obtain approval on your reorganization plan from an unsecured creditors’ committee. Instead, the court will schedule a status conference within 60 days to help you chart the correct course. The costs of filing have also been significantly reduced.
- Allowing for long-term repayment of administrative expenses. Any administrative fees associated with your reorganization plan will now be added to the repayment schedule rather than paid upfront.
- Waiving the “Absolute Priority Rule.” Before the SBRA, equity interest holders in a small business had to wait until all debts were paid in full to continue holding ownership. That rule now does not apply to businesses filing under subchapter 5.
Am I Eligible for Bankruptcy Under Subchapter 5?
For years, major corporations have benefitted from Chapter 11 bankruptcy, using this provision to pay off their debts and remain in operation. Subchapter 5 expands this option to small business owners in a more meaningful way, allowing qualifying businesses with less than $2,725,625 in secured and unsecured debt to seek relief. Because of the economic havoc caused by the COVID-19 pandemic, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) expanded Subchapter 5 even further, temporarily raising the required debt limit to $7,500,000 until March 2021.
If you have concerns about meeting your debt obligations, Pearson Butler can provide the detail-oriented and thoughtful counsel that you need when filing for Chapter 11 under the SBRA. We are well-acquainted with the timelines and requirements for this form of bankruptcy – and we are committed to helping small Utah businesses get through these difficult times.
Need to speak with one of our SBRA attorneys? Call (800) 265-2314 for a free consultation.