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How Can Subchapter 5 Help Businesses During COVID-19?

Seeking Debt Relief Becomes Easier Under the SBRA

Historically, it has often been difficult for small business owners to seek debt relief through Chapter 11 bankruptcy, which allows companies to restructure their debts and assets without going out of business. Late last year, however, the Small Business Reorganization Act (SBRA) was signed into law – and thankfully, this important piece of legislation became effective in February 2020, only a month before the COVID-19 pandemic began to batter the United States economy.

The SBRA made some crucial (and long overdue) changes to the Chapter 11 bankruptcy code: It added subchapter 5, which includes unique provisions for small business owners who need debt relief. Because Chapter 11 bankruptcy often involves lengthy procedural delays, upfront administrative costs, and extensive reorganization planning, many small business owners were previously unable to take advantage of this law. Now these issues have been waived or adjusted to fit small businesses.

What Is the Benefit to Filing Under Subchapter 5?  

When your business is overwhelmed with debt, one of the best ways to overcome this problem is to file for Chapter 11 bankruptcy. Technically a “reorganization,” this form of bankruptcy does not mean that you will lose your business. Instead, the business is preserved and must simply follow a court-ordered debt repayment plan, which is adjusted to fit the businesses’ needs.

Now that the SBRA has gone into effect, subchapter 5 filers can expect the following benefits:

  • Reduced costs when filing for bankruptcy
  • Extensions or modifications for residential mortgages related to your business
  • A shortened, 90-day timeline for bankruptcy filing and submitting your debt repayment plan
  • Longer payment schedules for administrative expenses
  • No need for unsecured creditors’ committees
  • The ability for debtors to retain assets after reorganization

Recognizing how the SBRA could help small business owners affected by COVID-19 losses, Congress also included another amendment to subchapter 5 in the Coronavirus Aid, Relief, and Economic Security or CARES Act, which was passed with overwhelming bipartisan support in late March 2020. Now, the debt limit for subchapter 5 has been temporarily expanded from $2,725,625 to $7,500,000, allowing a greater number of businesses to file using this section of the bankruptcy code.

Our Legal Team Is Here to Help

If you have questions about whether you are eligible for bankruptcy under the SBRA, our attorneys at Pearson Butler can help you find a better path forward into the future. With decades of experience and nearly 40 highly-qualified legal professionals on our Utah team, our full-service law firm can give you the comprehensive service and counsel you deserve.

Call us at (800) 265-2314 or contact us online to schedule a no-obligation initial consultation on your business.