Subchapter 5 Bankruptcy Lawyers in Utah
Helping Small Business Owners Seek Relief Under The Small Business Reorganization Act
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:
- Allowing for a faster and simpler process to obtain confirmation of a plan of reorganization and removing procedural roadblocks. It eliminates the need for a costly and time-consuming disclosure statement, and a potentially expensive confirmation of a plan by allowing a plan to be confirmed which is fair and equitable to creditors. . If you qualify for subchapter 5, the court will schedule a status conference within 60 days to help you chart the correct course. The debtor has exclusivity in filing a plan, and the plan is not subjected to the absolute priority rule and “new value exception” making the plan confirmation easier and more feasible. The SBRA requires a status conference be held within 60 days of the filing of the petition and the debtor must file their plan within 90 days. The debtor may confirm a plan if it is fair and equitable
- 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 pay all debts in full to own the company’s assets after the reorganization. That rule now does not apply to businesses filing under subchapter 5.
- Subchapter 5 is much less expensive. The costs of filing have been significantly reduced. There are no US Trustee quarterly fees, no lengthy disclosure statements, and a simplified plan that trims much of the legal expense associated with Chapter 11. There are also no monthly reports required by the US Trustee’s office, saving legal and accounting expenses.
- Subchapter 5 makes it easier to confirm a plan of reorganization. Subchapter 5 leaves the creditors less power than under traditional Chapter 11, making it easier and more efficient for companies to reorganize.
- Subchapter 5 mandates communication between the debtor and creditors. Under the SBRA, the debtor must meet and attempt to obtain a consensual plan from the creditors.
Am I Eligible for Bankruptcy Under Subchapter 5?
For years, major corporations have benefited 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.