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Time Is Running Out To Take Advantage Of Higher Debt Limits For Subchapter V Bankruptcies

May 13, 2024

The Small Business Reorganization Act (SBRA) of 2019 was enacted in February 2020. SBRA allowed for an easier mechanism for small businesses to reorganize under a new Subchapter V within Chapter 11 of the Bankruptcy Code. To qualify, debtors had to have less than $2.75 million in debt, be engaged in commercial or business activities, and meet other criteria. In response to the COVID-19 pandemic, Congress increased the debt limitations for businesses to qualify for Subchapter V of Chapter 11 to $7.5 million for a two-year period. Congress further extended the higher debt limit for an additional two-year period, which is set to expire on June 21, 2024. 

The temporary $7.5 million debt limit applies to all small business debtor cases filed on or after March 27, 2022, through June 21, 2024. At that point, the debt limit will revert back to the lower amount unless Congress takes action, which will make Subchapter V reorganization inaccessible to many small businesses. The clock is ticking, and time is quickly running out to apply for debt relief under the higher debt threshold. Act now to secure your financial future. 

Benefits Of Filing For Bankruptcy Under Subchapter V 

For small businesses (as defined in the bankruptcy code), filing under regular Chapter 11 is often too expensive and too complicated, which has led to many small businesses failing because they had little recourse for restructuring debt.

Subchapter V has changed that. If your business qualifies, there are multiple benefits for filing under Subchapter V. These benefits include the following: 

  • The deadlines for filing reorganization plans are shorter, and the process is generally less time-consuming than traditional Chapter 11 reorganization.

  • Subchapter V enables small businesses to come out of bankruptcy with a court-approved reorganization plan quickly after filing for bankruptcy.

  • A streamlined process for reorganization enables debtors to repay only a small percent of the debt to unsecured creditors without liquidating the debtor’s business.

  • Debtors have greater flexibility in negotiating restructuring plans with creditors.

  • There is no required payment of United States Trustee quarterly fees, which can be prohibitively costly for small businesses.

  • There is no appointment of an Unsecured Creditors Committee, freeing debtors from the obligation to pay the professional fees for the committee chair. 

  • Creditor consent is not required to confirm the plan as long as it is “fair and equitable,” as defined by the bankruptcy code.

  • The debtor is the only party that may propose a plan. The debtor does not need to negotiate competing plans with creditors, which keeps the process from dragging on longer than necessary while business owners attempt to deal with multiple creditors. The debtor must propose the plan within 90 days of filing for bankruptcy, but the court can extend that for cause.

  • Small businesses (as defined in the bankruptcy code) can reorganize at a lower cost than in traditional Chapter 11 bankruptcies.

Experienced Legal Help Is Critical

Although Subchapter V bankruptcy cases are usually less complicated and more debtor-friendly than traditional Chapter 11 bankruptcy cases, they are still complex from a legal standpoint.

Subchapter V covers a wide range of debts, including secured and unsecured debts, and priority debts such as taxes. Subchapter V has very specific eligibility requirements, filing deadlines, limits, required disclosure statements, and a host of other stringent requirements, all of which make working with an experienced legal team critically important. Understanding these nuances is crucial to navigating the process successfully.

BransonLaw Can Help

Early on, after the passage of SBRA, Jeffrey S. Ainsworth, an attorney with our firm, recognized the unique provisions of Subchapter V and its benefits for small businesses. We have been one of the leading firms in the country in confirming Subchapter V reorganization plans. At BransonLaw, we can assess your financial situation and help you decide whether bankruptcy makes sense for you and, if so, whether your business qualifies for filing under Subchapter V of Chapter 11. Call us today if you are considering bankruptcy. Don’t miss this important debt limit deadline. Our team of experienced bankruptcy attorneys is here to guide you through the bankruptcy process and help you get back on your feet.

We are located in Orlando, Florida, and handle bankruptcy cases throughout the State. If you live or operate a business in Florida and cannot manage your debt, call us today. Our goal is to help you understand your options.